Yesterday's Rally May Be Short-Lived

The Dow rallied 320 points yesterday. Most analysts are crediting the rally to Wal-Mart's (WMT) better-than-expected earnings, and comments out of Goldman Sachs (GS) saying it won't be posting any significant writedowns. Other analysts are saying the market rallied simply because it was short-term oversold. In other words, stocks went up today because they had gone down in previous days.

I was happy to see yesterday's rally in Wal-Mart because the stock is on my recommended list in the Special Situation Survey. I'm also happy to see the nice rebound in Citigroup (C) because I started buying it just a few days ago (see Can Citigroup Maintain the Dividend?). Yet I remain cautious on stocks overall. We will be seeing more mortgage-related writedowns. Monday's announcement from E*Trade (ETFC) won't be the last. Furthermore, problems could soon arise with securitized credit card obligations.

Although oil prices backed off more than $3 per barrel today, they remain extraordinarily high. This means gasoline prices will be going up significantly from current levels--just in time for the holiday shopping season. With consumer spending likely to slow, the weak dollar may be the only thing keeping our economy out of recession.

I would use strong rallies like yesterday's to hedge positions. The UltraShort ProShares ETFs are a good way to accomplish this.

Comments

[Mosh:]

And it also may be long lived as well. There is nothing new in your argument besides the 50:50 chance.

2007 Nov 14 06:06 PM

[Unimpressed...:]

One thing the investor does not need are more, so-called, analysts predicting gloom and doom in the market. Anyone with a lick of sense realizes that the stock market is based on emotion and greed. It is rarely connected to reality but is, in fact, controlled and manipulated by large funds, very rich individuals, and the brokerage houses.

Any investor who depends of self-interested analysts with hidden agendas and/or tied to investment houses has no business in the market. Rather they should seek a well-managed and reputable mutual fund for their investments and forget about making an overnight killing or determining the daily direction of stock market.

Bottom line for small investors: The stock market is a crap shoot and you don’t have the expertise or information to play.

2007 Nov 15 11:04 AM

[Unimpressed...:]

One thing the investor does not need are more, so-called, analysts predicting gloom and doom in the market. Anyone with a lick of sense realizes that the stock market is based on emotion and greed. It is rarely connected to reality but is, in fact, controlled and manipulated by large funds, very rich individuals, and the brokerage houses.

Any investor who depends of self-interested analysts with hidden agendas and/or tied to investment houses has no business in the market. Rather they should seek a well-managed and reputable mutual fund for their investments and forget about making an overnight killing or determining the daily direction of stock market.

Bottom line for small investors: The stock market is a crap shoot and you don’t have the expertise or information to play.

2007 Nov 15 11:04 AM