Up. Down. Going Nowhere

Feb.22.08 | About: SPDR S&P (SPY)

As we've been saying the past month, we are really doing nothing. Simply churning. Every rise, breathless bulls tell us this is the beginning of the recovery. Every drop, breathless bears tell us lock up the women and children. 

I don't know which way we go, but as I've stated I remain very conservative and my assumption is down is the easier path. The equity and bond markets have completely disassociated. Could that go on for weeks? months? Yes. But the longer the bond market is in disarray the worse I think the outcome for equity markets eventually will be.

As I have stated in my 13 Outlier Predictions for 2008 I was expecting a recovery in the 2nd half of 2008 for 2 reasons. #1 a flood of Fed liquidity (which is happening), and #2 foreign buying (not as much as I assumed so far despite "great value"). So far this liquidity is running into commodities and Bubble 3.0 is in the early stages.

But I also am guessing this is what is propping up the market. If you really take a step back and list all the issues that have hit the market since last summer and all the potential issues coming down the pike, it is amazing we are down so little. So I continue to respect the fact that the Fed is here to protect capitalism at all costs (mostly, costs to Main Street), and in the past three weeks I've read that M2 and M3 are exploding higher.

So worthless dollars continue to flood the world - propping up assets. It is a pathetic game on one hand but it makes equity investors cackle with glee I suppose. We don't want to take our medicine. As for the technicals, S&P 500 1370 is a clear ceiling. As I've stated we are essentially stuck in 1320-1370 range. So we're really going nowhere fast... if this is the eye of the storm or the beginning of equity market bubble 3.0 who knows.

But we remain below all key technical moving averages and lack of volume is another bad sign. It seems smart money is waiting for someone else to go first. So I have nothing more to really update you - in crazy times like this where some of the most incredible behind the scenes financial machinations are happening, I am letting the charts guide me for the near term.

If S&P makes a move to say 1410, I'd turn short term bullish and if we break below 1310 or so, we want to get very bearish. Ironically, both levels are not very far from here which makes it a bit ironic. But where we have been trading the past month is just marking time. We've been able to make some nice money the past month, during this time, so that is good - but obviously we can turn at a moment's notice.

Honestly it is a bit boring because we are completely trendless. As for individual stocks, I have a problem. Every stock I like is either (a) in the midst of a huge run (fertilizer, coal) so I don't want to pile in and catch a bear market top (so I've been cutting back) or (b) in a completely broken chart which I don't want to buy, because broken stocks tend to remain broken for much longer than anticipated, and can lead to major losses. So it is very hard to find new buys. Even the ones I find, I am sort of pressing a bit to make a case... sometimes the hardest (but most logical) thing to do is nothing. Which is sort of where I am now.