The bears have come out of hibernation this week. They usually spend their days in the back corners of the financial world, grumbling about how the market keeps going up despite all of the economic instability in the current system. Over the last few weeks, they have finally found an audience. Also, people are pulling money out of stocks in 401-Ks and looking for advice (I noticed increase viewing of this blog). So anyways, what is going on?
Well this week the market ended basically flat, and the bulls and bears both have vocal proponents in the newspapers I read today. The bulls say that a S&P downgrade isn't the word of god handed down, and the bears point to the U.S. downgrade, but also to instability in Europe. Part of the fear in Europe is that not only will sovereign debt pull down the Eurozone's major governments in the form of downgrades and defaults, but this will leach into the private sector. If banks like Societe Generale have too much exposure to sovereign European debt, then the "European sovereign debt crisis" just becomes a European crisis. The bulls, on the other hand, will point to lower jobless claims and an interesting note buried in U.S.A. Today: insiders are buying. Over the last few weeks company directors and executive officers have bought on a scale not seen since spring of 2008 (a great time to buy). So while individuals (the so-called "dumb money") are cashing out of stocks, insiders and professionals (smart money) are buying. This is a recipe for a bottom in the finest sense.
Looking forward, I have re-entered positions with real money and in the model portfolio in CLF & SHOO. I like both of these, and now I am about 80% invested in the model portfolio and over 90% invested in my real one. I think next week will see good economic news in the U.S. resulting in a pop of the S&P up to around 1260, and then there will be significant resistance. At this point I will probably go back to practically all cash, and short the market down to a lower low, possibly around 1050 for the S&P 500. This is what is called a "dead cat bounce." Betting on dead cats is risky business, and it is ill-advised for just about anyone, especially if you do not actively follow the markets. If you haven't already bought, don't buy now. Chances are the market will bounce next week, and then continue lower. I plan to watch it closely and try to ride it up and then flip and ride it back down. It won't be nearly as neat or easy as it sounds.