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LawrenceWang on S&P 500 and the Shanghai index: How far to go? Good article, carry on
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WillyP on Book Review: Animal Spirits by Shiller and Akerlof Are you serious? This book is most definitely n...
Posts by Themes
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Reading links on market direction.
Well, this linkfest specifically focuses on market prognostications!
Value Line’s rationale for lowering its recommended equity allocation was not that the economic and financial news is about to take a big turn for the worse, however. Instead, the firm’s concern is that the stock market has rallied so far, so fast, that it has gotten too far ahead of itself.
Ritholtz has 1050-1080 as an upside target for the S&P 500, with a slight chance it can go as high as 1200 (It’s a low probability event). Making up 68% of loss is not unheard of. If the rally does extend to those outer limits, Ritholtz sees the Dow topping out "somewhere around 12,000.
I don't believe in market calls, and trying to time turns is a perilous game. But most savvy people I know have been skeptical of this rally, beyond the initial strong bounce off the bottom. It has not had the characteristics of a bull market. Volumes have been underwhelming, no new leadership group has emerged, and as greybeards like to point out, comparatively short, large amplitude rallies are a bear market speciality.
The bottom line is that we are not inclined to aggressively chase the market here. Rather, we eye a better opportunity to be long equities into year-end on a potential autumnal pullback.
Now is not the time to be complacent. Most assets are no longer the bargains they were a few short months ago. As we have stated many times, tactical asset allocation is about taking risks when they are compensated and backing away when they are not. In some cases, the snapback has led risky asset classes like equities and high yield bonds to be susceptible to further price declines
The point here isn't so much to say, "Ah, prices are extreme and this is a top". Barring a market top, the extreme move from March, 2009 is indicative of two things: 1) the easy gains are behind us; and 2) the indices will likely move sideways to higher but in a more choppy fashion. If a market top comes out of this consolidation, it is likely to develop over the next several months. In general, market tops are affairs; market bottoms are events.
Check complete post here:
financialjoyride.blogspot.com/2009/08/re...
Bob Janjuah : Exit short positions if market crosses 1022 4 days in a row.
Note: This post originally appeared here: http://bit.ly/1Gepi
More »Came across this David Tice interview, courtesy Pragcap.
S&P 500 and the Shanghai index: How far to go?
Babak points out the over-extended nature of the current rally, and the similarity to the speculative blow-off of October-November 2007. The RSI indicator in the chart is also similarly showing an overbought reading in excess of 70. This marked the top during the previous bull run. However, the overbought conditions became even more overbought, and stayed that way before the markets corrected. In fact, the Shanghai market went up more than 100% after registering RSI readings in excess of 70!!
Note also the similarity between the 1 day 7% decline two weeks ago and the 8.8% one day decline on February 26th, 2007. (John Authers talks about this in FT.) The Shanghai markets continued rallying for the next few months after this decline. Historically, the bear market rally of 1929-1930 also consisted of a 50% retracement back to 294, after the initial decline took the Dow from 381 to 198. Here’s an excellent FT piece on comparisons with other historical periods.
Well, turns out Fibonacci has really been in the news for retracement levels last week. For a list of sample instances, please refer to the link. While the absolute numbers might differ marginally, the upshot is the same. These levels are being watched by a huge number of investors.
The key point is that most commentators see the equity markets upside capped at around 0-10% from here, but the downside is considerable, quite possibly retesting the March lows. Even the non-Fibonacci fundamentals driven consensus seems to be for at most a rally to around the 1,050-1,100 mark on the S&P 500. This suggests we’ll either:
Note: This article originally appeared on Fundamental Insights here and here.
Ful Disclosure : No positions
Blockbuster Chinese June loan growth: FINAL stock surge ahead?
It is widely accepted that a big reason for the Chinese equity rally was the massive increase in banking loans and money supply. Thus when the Financial Times reported a blockbuster June loan growth, I wondered if this would lead to a July-August surge in the stock markets, the last one. Looks like we might be getting one.
Here are two charts showing the credit and money supply surge:
More »Book Review: Animal Spirits by Shiller and Akerlof
"Some books are to be tasted; others swallowed; and some to be chewed and digested."
More »The 600 year silver bear market.
The book "The Ascent of Money" actually talks in depth about the discovery of the New World Potosi mines by the Spaniards. Apparently, a great metal shortage was solved by this discovery. The Spanish ‘pieces of eight’ became the global reserve currency. But obviously this did not make the Spaniards wealthy in the long term. The increase in money supply merely increased the prices of all goods and services. The period from 1540 to 1640 was the only period where annual inflation of about 2% per annum actually existed before the era of fiat currencies. Check out my earlier post on interesting quotes from the book here.
More »