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Brett Owens
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Brett earned his first contrarian investing profits in 2004 when he purchased an obscure investment (at the time): sugar futures. His friends on Wall Street stopped laughing soon enough when sugar rocketed to multi decade highs, illustrating that it indeed pays to be contrary. Brett quickly... More
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  • About That Stock Market Rally? Why It Might Be Over After All 6 comments
    Jun 4, 2010 7:31 PM | about stocks: SDS

     What a way to end the week!  The bears, and more importantly, the much feared deflation bird are back in charge.  For how long?

    Yesterday, we took stock of the situation, and surmised that while the mini-rally on the S&P 500 had gone as far as it needed to.  So we figured the odds favored a modest continuation upwards.

    So far, we sure were wrong!

    It's tough to be an S&P bear on a day like today without a nice, juicy short position.  But, that's the nature of trading.  And if we take out the 1040 lows on the S&P, we'll have a nice confirmation that it's "all clear" to get short as this ship goes down, and goes down hard.

    So what'd we learn today?

    1. Volume expanded, after contracting for much of the recent rally.  That's bearish.

    S&P 500 Volume June 4 2010Volume was UP today - as selling pressure intensified. (Source:StockCharts.com)

    2. If and when this ship goes down, there is NOWHERE TO HIDE.  No investment are safe.  None.  497 out of 500 stocks on the S&P 500 index closed the day DOWN.

    This is what happens during deflationary waves.  Forget "safe" stocks - they are toast too.  Cash is the only safe place to be.

    Scared?  Good - you should be.  Now is as good a time as any to review ourdeflation investing strategy.

    Are markets now oversold?  Absolutely.  But can they go from oversold to very, very oversold?  Yes - in fact, that's what usually happens in bear markets.  The real fireworks occurs when markets are already oversold.



    Disclosure: Long SDS
    Stocks: SDS
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Comments (6)
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  • dhansen54
    , contributor
    Comments (87) | Send Message
     
    Well, I like your analysis. But one issue: those inverse ETFs. Aren't they based on derivatives of some sort? Are those things at serious risk in the event financial institutions begin collapsing a la Lehman?

     

    Aside from that, Great Depression II is not a problem, but a solution to many different problems---the excesses of government spending being just one.
    4 Jun 2010, 10:10 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11590) | Send Message
     
    Wringing out excess liquidity. 'Excess liquidity' describes the Flood. The Flood describes the 'end of the world'.

     

    Noah describes the Dawn after the world is destroyed by water.
    5 Jun 2010, 03:04 AM Reply Like
  • Andy Zaky
    , contributor
    Comments (538) | Send Message
     
    The markets aren't oversold. I never understood how people throw around terms like overbought and oversold. Well the markets may be oversold on the 15 second chart. But the market certainly isn't oversold on the 14-day RSI or even the 7-day RSI. Sure it was a broad based distribution day. But that doesn't make it oversold. We can go a lot lower before even throwing around terms like oversold.
    5 Jun 2010, 11:05 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11590) | Send Message
     
    Weekly charts look like the selling is not over:

     

    seekingalpha.com/insta...

     

    Have a look.
    13 Jun 2010, 08:33 AM Reply Like
  • Brett Owens
    , contributor
    Comments (184) | Send Message
     
    Author’s reply » Thanks Michael, great charts!
    13 Jun 2010, 03:31 PM Reply Like
  • Brett Owens
    , contributor
    Comments (184) | Send Message
     
    Author’s reply » dhansen: Yes, great point - would only recommend ETFs for short term speculating.

     

    And I also agree re: Great Depression II - we've got 100 years of entitlements and creeping socialism to unwind - needs to get ugly so that we can start again fresh.
    13 Jun 2010, 03:32 PM Reply Like
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