I expressed concern recently when Investors Business Daily declared that the market was in correction. I respectfully disagreed. I suggested to one of my clients that it must have been interesting to be sitting at that table and coming to that conclusion, as it was highly debatable. In the end, the strength of the NASDAQ, mostly immune from rising fuel prices and deteriorating credit concerns, was the tell. So, it pleased me immensely Thursday when IBD declared that the uptrend is alive and kicking.
Folks, Thursday was a big, big day. ABK and MBI got the downgrades, and it impacted the market for only a nanosecond. Perhaps even more interesting to me, Mr. Einhorn, huge Lehman bear, admitted on CNBC that the Fed would not let LEH fail. That makes me feel better as an XLF bull - LEH won't be taking down the house. Small-caps and the NASDAQ motored to a new post-March high on good volume. If one is short this market (there are lots who are - check out the recent short-interest data), one should be investing in Hanes (HBI). Talk about a replacement cycle!
Lest I come off as some big-ego told-you-so, let me be the first to say that I have been SO WRONG. I have bet heavily on financials, and that hasn't been the place to be thus far. Luckily, that isn't the only sector that has interested me. I admit to being early, but I am more confident than ever that we are about to experience the mother of all short-squeezes in the sector. I wrote about FNM not too long ago, and I still like that name a lot (as well as the several small-cap names I have shared). XLF is due for a big bounce - look for a 30+ print this month.
Yes, IBD has missed a few, but I still give their philosphy a great deal of respect. As far as sentiment, I watch cash levels for mutual funds, P/C ratios on sell-offs, short-interest levels and, quite frankly, the types of reactions I get when I publish what I view as contrarian ideas. I have noticed the stronger the backlash, the more likely I am to be correct.
it builds trust in what you say; i for myself appreciate it - thanks!
Was it the culmination of the move from Mid-March? I don't know. My view, expressed in writing on the pages of Seeking Alpha, has been that the S&P 500 would make new highs but might not make it through 1455 before correcting. I had indicated in that article that the pullback to 1340-1380 was within reason (seekingalpha.com/artic...). We made it to 1440 (a new recovery high), and now we are at 1360. Of course, the R2000 is still higher than when I changed my view from bear market rally to something more sustainable. I either have missed a good trade or am just wrong about characterizing the bear market as over. My guess is that we will learn shortly.
disclosure: still long SKF
There are always opportunities in the market but you have to find the right areas. In Australia for instance, coal gas has been huge just recently. But financials! Give me a break. You would have to be nuts to be in financials.
The 200-day MA of the SPY is still in a downtrend, and even a quickie glance at the 2-year weekly chart of SPY will instantly remind us that things have yet to recover from the breakdown that began last October!
That chart will also show us that we are still in a trader's market, and that this is not yet the time for jumping into long or short positions and then confidently counting your coin!
The past months have been riddled with reversals, squeezes, breakout and breakdowns, and there is not a shred of technical evidence that this 'trend' is about to end!
This environment is one in which there are only two kinds of traders: the nimble and the dead.
Pronouncements that we are either stuck in a bear market or that the worst is over, are not only silly; they can be downright dangerous!!!
Long or short, be very careful of opening new positions, and then watch 'em like a hawk!
The S&P500 first hit its current level back in April, 1999. That was a time when many were making outlandish predictions about a SPX of 3500+!
Price action is the only "real" action there is... Predictions can't even buy you a phone call nowadays!
There wasn't any signficant technical damage done to most of the stocks I follow, which tend to be small-cap. Even looking at the major averages, the S&P 500 didn't break any significant support. I become concerned if 1340 breaks. Even my beloved red-headed step-child, the Financials, aren't making new lows (yet).
Does anyone else find it interesting how many negative responses positive articles provoke? Maybe Seeking Alpha readers tend to be more negative than investors in general. Maybe people like to disagree rather than agree. Rising short-interest, falling margin borrowing and the anecdotal sentiment reads that I get all suggest that the crowd is expecting a decline. I don't always bet against the crowd, but it sure pays off when it works. I was negative like many of you folks - read my posts. I like to buy oversold markets for a trade in a bear market, which I suggested in January and in March. I just realized, wrongly you folks all seem to believe, that March actually was a good low, and adjusted my outlook accordingly. I was lucky to never be on the wrong side of a trade in what was an extremely volatile market thus far this year, though I may be now. I am not married to my present beliefs, and I certainly have no vested interest in being bullish.
seekingalpha.com/artic...?
Now, do some real tough critical analysis, ok?
Events like -3% down days do not occur in vacuums, but rather in the context of broader trends and conditions...
Currently we are in a bear market, if you grant me that bear markets exist when both the 150 and 200 day MA's are in a downtrend, as is the case today.
If you look at Bespoke's recent dates for DOW -3% downers in bear markets, we find these lovely numbers for the S&P500:
9/3/02 SPX 878 fell to 776 10/9/02
8/5/02 SPX 834 climbed to 962 before falling to new low of 776 7/19/02 SPX 847 fell to 797 climbed to 962, fell to 776
7/10/02 SPX 920 fell to 797 climbed to 962, fell to 776
The percentages both up and down make for quite a ride, and would sprout grey hairs on a bowling ball... Yet, for a nimble trader, they represent great opportunities.
Alan, this market has had a nice rally of some 56 days or whatever from the Bear Stearns lows back in March... hopefully, you've been able to take some profits and bank some coin.
Right now, the SPX has been in a very tight technical range between support and resistance. It will soon either breakout or breakdown, and those who have made their predictions either way will congratulate themselves on a win from 50-50 odds...
Personally, I'm 90% in cash and waiting patiently for the next up or down elevator... patient as an Anaconda.
The fact that the S&P 500 150dma (or 200 if you prefer) is down doesn't prove that we are still in a bear market. It is flattening. Go back to the worst bear market of my life - 2001/2002 and look at how long it took the 150dma to turn after the lows in October 2002: April 2003. Hey, last year I said we would have a bear market and a recession, but I think I am wrong now (better to be lucky than smart!). We didn't get the official 20% down, and we didn't get the negative GDP prints. I am fully aware of what a crappy world we seem to live in, though it is sunny here today, and I will certainly adjust my presently optimistic views accordingly if/when proven wrong.
Thanks.
I didn't mean to imply that my strategy at present was to do nothing.
I was heavily into cash last Friday night due to profit-taking, and some of that ammo went back to work today...
My point is that until we do have a clear trend, then the most successful traders will either be very nimble, or consistently lucky!
Luck has proven to be a poor investment strategy for me, I'm afraid!