A Selloff Follows the Out-of-the-Blue Rally - Not Good

That was not the right way to follow up a reversal day (Tuesday). To open with strength and close at the low of the day, completely erasing Tuesday's reversal (which was in itself bullish) - not a good thing. That said, as I've been saying We Need Fear, and perhaps the first hints of it are arriving (would coal stocks losing 1/5th of their value in 1 session be a good indicator?)

So we're back here at S&P 1260 where we miraculously rallied off on Tuesday (out of the blue) - of course the market being the wicked thing she is - I was positioned much better for a fall through that level  before the out of the blue rally. So she is being at her most wicked self at this point with reversals left and right. I am reading a lot of frustrated investors/traders on multiple sites so if you are feeling that way, you are not alone. I haven't seen so many headfakes since the Barry Sanders years.

Anyhow, back toTuesday's comments [Could be Panic Time] - if we break that S&P 1260 level, unfortunately the most logical path is a move down to 1225 which would be levels last seen in 2006. The last move down in a selloff is usually the most traumatic, so in case we go there be prepared. On the positive side the generals are finally being shot, group by group. Even Ultrashort Oil - Gas (DUG) was working there in the last hour of the day. That is the last group that needs to fall.

For those of you who joined the market in the past year or so, it is not usually like this - in fact anyone who got in between 2003 and early 2007 was saying "this is so easy".... it is never really easy. But this period with five corrections in under 12 months has been especially tough. On the positive side by experiencing this you can chide that newbie investor who shows up in 2010, throws money at anything, makes 20% and claims "this market thing is so easy" etc etc.That's how I felt listening to all the new guys who started post 2000-2002. Always a silver lining.

It's a rough day in what's been a rough week - but only half a day left to go. The harder we fall, the more bullish I am actually getting - but losing money during the (tail?) end of the downfall is never fun. Thankfully we've avoided much of the carnage in June so we're just giving back some gains and buying merchandise that should serve us well this fall and winter.


Disclosure: Long Ultrashort Oil & Gas in fund; no personal position

Comments

[blink0404:]

Enter your comment hereHow to survive in this market- sit back and wait for a sign that the market is recovering; until then hold cash, a safety in this market.

Here's a pretty good podcast on what to do during this market- check it out. www.greenfaucet.com/sh....

One of the main problem is that the classic safeholds in this market: coal, steel, bulk shipping, agriculture- are becoming less safe.

2008 Jul 03 12:05 PM

[moose60061:]

Hey blink, do you find it necessary to hit EVERY article on Seeking Alpha and insert your greenfaucet crap? One guru's opinion is just that...........an opinion

2008 Jul 04 11:08 AM

[Jack Yetiv:]

I would caution readers on one thing--I think that when we get around to recovering from whatever bottom we hit, it will be a long recovery due to the triple negative effect of the housing crisis, the credit crisis, and significant inflation causing real incomes to drop.

This will be a "U" recovery with a long time (more than several years) until we see Nas 3000 or DOW 14000 or any previous records.

Jack

2008 Jul 04 11:42 AM

[wsigler:]

Jack Yetif: (off topic) Haven't heard you say much about TSL for quite a while. Where do you stand with an outlook for it? Do you think the next earnings report will a) be as robust as you once thought b) have any significant effect on stock price (feel free to use crystal ball on this one:-)

Wayne

2008 Jul 04 11:52 AM

[cynic69:]

Hey Jack! Your polyanna view of the world is total nonsense. We have passed peak oil and we are experiencing the first stages of the "peak oil death spiral". Check out this web site: www.ibisworld.com/indu... It says that as folks curtail there driving due to higher gasoline prices fewer mechanics will be required. The auto business is one of the major components of our economy and as thousands of mechanics are layed off the loss of revenue is going to snake through our economy like a deadly cancer. This same situation exists for the airline industry. The truth is that with oil at these prices stocks are only worth about 25% of their current value. When "investors" finally figure this out its Katy bar the door. If you think the price of energy is going down soon I think you are right. With the world in a sever recession far less energy will be required.

2008 Jul 04 12:45 PM

[bill d:]

What are you - 12 ?
You obviously haven't lived anytime from the 30's through the 90's.
We had a few doom sayers then too but they were all full of shit and most of us knew it then too.
Yes, Henny Penny - the sky is falling, the world is doomed and we are all going to die (but not tomorrow).
We have passed "peak oil" ??? That's too stupid to comment on.
Poor auto industry - been ripping us off for years - took the Japanese to wake them up.
My ass really bleeds for those "poor" auto workers that screwed the hand that fed them - wanna talk about their "peak" wages and benefits ???
Don't be picking on Jack - He has helped me considerably which is way more I can say for just about everybody else that posts here.
Sounds like your airline & auto stocks aren't doing too well.

2008 Jul 04 06:14 PM

[phdinsuntan...:]

Speculation, Futures Prices, and the U.S. Real Price of Crude Oil
July 2, 2008

Abstract:
In this study, we examine the relationship between the U.S. real price of oil and factors that affect its movement over time: futures prices, the value of the dollar, exploration, demand, and supply. All of these variables are treated as jointly endogenous and a reduced form vector error correction model, testing for cointegration amongst the variables, is estimated. We find that for model specifications with short-term futures contracts, supply does indeed dominate price movements in the crude oil market. However, for specifications including longer-term contracts that are inherently more speculative, the real price of oil appears to be determined predominantly by the futures price. Moreover, there is empirical evidence of hoarding in the crude oil market: both oil stocks/inventories and futures prices are found to be positively cointegrated/correlate... with each other. From a policy perspective, the results of this analysis indicate that if regulators really wanted to limit speculation in the oil market, it should keep the shorter-term futures contracts and eliminate the more speculative six months futures contracts.

2008 Jul 09 02:52 PM