Is This a Market or a Rodeo?

Excerpt from Raymond James strategist Jeffrey Saut's latest essay:

Indeed, while we were pretty bullish at the mid-July “lows,” we subsequently sold those trading positions into strength, thinking that the upside “buying stampede” would exhaust itself in the typical 17–25 session timeframe, which implied the equity markets were due to peak during the week of August’s option expiration (August 15^th).

Moreover, many of the finger-to-wallet indicators we use to identify major market “lows” were sorely lacking at last month’s downside selling climax. However, we opined that the “selling stampede” in groups like energy/gold might be coming to an end during that same option expiration week since their respective downside skeins had lasted the perfunctory 17–25 sessions.

Accordingly, for trading accounts, we recommended the scale-down buying of select Exchange Traded Funds (ETFs) playing to those groups. And given the large rallies in those groups last week, prudent trading types should have sold partial positions respectively. As for investment accounts, we continue to emphasize the clean balance sheet, solid fundamentals and dividend yielding names so often mentioned in these missives.

 The call for this week: According to Lowry’s,“[Last] week’s increase in Selling Pressure, to its highest level of the bear market (thus far), plus the lack of 90% Downside Days immediately preceding the mid-July market low[s], showed no signs of [the] diminishing selling so vital to the start of a sustained market advance. . . . [Indeed] The rally in the DJIA from its July low to [the] August high has been characterized by a steady increase in Supply (read: sellers) and sluggish Demand (read: buyers). This combination appears much more consistent with a rally in a bear market than with the start of a major move higher.”

Regrettably, that’s the way it has been since we wrote about the Dow Theory “sell signal” of last November. Meanwhile, the DJIA (11628.06) and S&P 500 (SPX/1292.20) have broken below their respective March 2008 “lows,” while the small-cap (SML/387.46) and mid-cap (MID/814.92) indices have not. And don’t look now, but commodities had their biggest weekly rally in decades last week as things continue to get curiouser and curiouser.

Disclosure: None

Comments

[whidbey:]

Rodeo? No. A rodeo is organized in many respects. The global markets are being pushed randomly by a liquidity squeeze and real fear of economic collapse in the USA and EU (maybe Russia and China too). It is not over and it is not ending soon. When consumers back-off the house of cards falls and its is a ways to the bottom as near can be told. More important, the consumer driver if blunted for some time to come.

2008 Aug 26 07:47 PM

[ksmithdc:]

LOL! Nice comments, whidbey.

2008 Aug 27 09:46 AM

[notsosmart:]

more like vegas only nobody brings you a drink.

2008 Aug 27 10:01 AM

[venividivici:]

I think it is very unfair to casinos to describe this market as one. Casinos are very strictly policed in the way they relieve their patrons of their money.

2008 Aug 27 11:12 AM

[User 232593:]

good point,vvv.but they bring a drink.

2008 Aug 27 12:05 PM

[wpdragon:]

Geesh, its 1:40, the Plunge Protection Group didn't run their 1:00 and 1:30 buy programs to keep that bid under the Dow!

What's up with THAT?

2008 Aug 27 01:39 PM