InvestBaboo

The Bull Is Back...on So Many Levels

Trader Mark's gripes about the fundamentals aside I have been screaming here on Seeking Alpha and my InstaBlog that the charts have exhibited a strong Buy signal since mid-to-end March of 2009 and that the rally has continued week after week after week. The ONLY TIME I thought the rally may come unhinged was when that moron Michael Mayo downgraded the bank sector. That is when the charts developed some serious strain however the crisis passed and the rally continued on its course. Trader Mark is right that we have handsomely beaten the SDMA (Simple Day Moving Average) for the S&P and Nasdaq and only the Nasdaq is over its 200 EDMA (Exponential Day Moving Average). If S&P breaks and closes above its 200 EDMA then TraderMark is right that more cash may come flowing in from the side as many chart-watcher fund managers will pile their money in not willing to sit on the sidelines any longer.

Now to the fundamentals. Who in hell really knows what the market is seeing a few months out down the road? While TraderMark gripes that P/E is out of whack it is because he (or I or anyone for that matter) can not really figure out the "E" part of P/E going down the road. If you use an optimistic number for the "E" then you are way undervalued and if you use a pessimistic number for the "E" then you are way overvalued. The market appears to be betting on a much larger "E" then what the bears seem to be forecasting. The next quarter earnings period will shed a more clear light on this picture.

However, I hasten to point out something important. It is the action in markets in China and India. I had noticed that the three markets (U.S.A., China and India) were pretty much in lock-step until a few weeks back. In other words, the old adage that when the U.S. sneezes China and India have caught the flu used to be true but no longer. Both China and India markets are making new highs as if they are unhinged from the U.S. markets. Does this mean that the theory that the China stimulus is going to drag us out of this rut has some validity to it? If consumption picks up substantially in China and India and the U.S. consumer is not as bad off as we thing he is then it is possible that the "E" part of our multi nationals will improve more significantly than we have given them credit for.

There is hope when you look at the fundamentals with the colored glasses I wear when I look at them. The only danger I see is if the next Q numbers don't validate to the market that the "E" picture is improving substantially then this rally may run into a wall. If however the "E" picture as envisioned by the street seems to be on track then we are looking at the Dow plowing pas 9000 and S&P past 1000 to new heights. Doom, death and despair that you see in the air aside what the market really cares is if the "E" is solid in the "P/E" and so far there are signs that it is.

Rising Interest Rates Signal 'Hyperinflationary Depression'

I agree with the serious (note - I say serious and not hyper) inflation theory but the rest of the article is bullcrap. It is the same bullcrap that has been peddled around repeatedly on SeekingAlpha while rally begin in March and through almost every day of the rally. These articles will continue to be published as the Dow and S&P continue to surge and cross the levels of 9000 and 1000 respectivley in very short order.

While things are never as good as they seem they are also never as bad as they seem. The author says with a straight face that the commercial real estate debt coming due is $178 billion as if this will torpedo the economy! This is in the context of words such as "gigantic" and "huge". Excuse me, is $178 billion not chump change compared to the trillions of dollars in debt problems we have been talking about?

The day that the housing prices reach a bottom and start climbing up (indications are that this is very near) the economy will recover. Due to the enormous amount of money being put in the recovery will be much faster. Inventory levels have fallen so much that sooner or later companies have to replenish it and this will begin the cycle of hiring. Spending is at an artificial low because even the 92% that have the jobs have been affraid to spend. When they see signs of recovery they will start spending at an increased level which in turn will lead to more manufacturing and additional creation of needed services and this will feed itself into increased employment. The good that has come out of this economic meltdown fiasco is that America and its people have learnt a big lesson and when we remake the nation we will emerge as much better and smarter people. Therefore, the foundation we are laying for the next bull market rally will be a strong one. All will end well but only a few will see the end for it will be and profit immensely from the ensuing recovery rally. Don't let articles like this dissuade you from taking advantage fo what is likely to be one of the biggest recovery rallys everyand a once-in-a-generation wealth creation opportunity.

The Undefinable, Unstoppable Bull Market of 2009

Jesus! Isn't the answer as simple as a market finding its correct level because it OVERCORRECTED in March due to unjust fears of total and complete financial meltdown and the incredible mayhem caused by the attack of the shorts on the banking industry? How can you call this rally unjustified when we are still not close to the point where we fell off the cliff? I suggest you look at the market from the perspective of WHERE IT WAS before it fell off the cliff and not measure it by the rapid climb it is doing to get back on the cliff! And then everything will seem pretty rational and the rally numbers are not far fetched or unjustified by any means!

The Bears' Skepticism Is Getting Old

This is very good. Almost all the comments here are bearish and many extremely bearish in nature. By definition such overabundance of bearish sentiment in the early stages of a bull market is good because it helps sustain the rally and take the market to new heights.

As I have always said everytime I have tried to judge the direction of the market based on my own anaysis I have been wrong. I just follow the trend. We have had a negative week and yet the charts don't say the trend has ended. If the trend does end I will jump ship and let my bearish emotions come out in full swing and have a good cry with all the bears. Meanwhile, I will finger those crispy currency notes I have in my pocket thanks to the recent bull market which I benefited from by just following the trend rather than sitting on the sidelines like most bears shaking their heads in disbelief. Why people just don't follow the market rather than sitting on the sidelines and trying to second-guess is beyond me!

Profit Taking or Something More?

You hit the nail right on the head! But for the secondaries the markets would still be up this past week. When the oversupply ceases the bulls will pick up where they left off and drive the markets higher.

Is It Time to Sell in May and Come Back Another Day?

You say:
********
For the first time in many weeks one of our indicators has delivered a sell signal. Our market leadership model needle is pointed at sell. We also noticed the breakdown on the charts as the NASDAQ crossed under the S&P 500 in terms of performance. The NASDAQ has led the way during this rally up, pay close attention to the lead dog. If it stops pulling the sled, eventually the sled stops moving in that direction.
********
NASDAQ has had 8 weeks of uptrend in the chart and three days of underperformance is enough fo you to declare an end to the rally. Some chartist you are! Today techs showed exceptional strength. If they keep it up tomorrow then will you republish the article saying the needle has just moved to a Buy? Maybe your chart buy/sell meter is broken in like those old cars from the 50's.

Rebound in Orders in Coming Months Likely to Be Strong

Correctamundo!

Jobs Lost in April? Try Jobs Gained in April

The market has largely ignored the jobs that will be created by the billions of dollars of stimulus money flowing into the economy. Wait till that hits the number and a true picture of recovery will emerge.

Don't Be Fooled by Inflation

Huh! So Peter Schiff has gone from a future of doom, death and dyspepsia to a future of growth but with hyperinflation? I see that he now grudgingly acknowledges that there is about 2 years of bull market before reality sets in and that reality is probably growth but with hyperinfaltion and more growth in foreign markets than in U.S. markets? Is this what I am reading? So even if through artificial means the U.S. will continue to fool the world and grow and the time of facing the truth may never come or is postponed indefinitely? If that is true then an investment portfolio that comprises of foreign equities, U.S. equities and Gold (as inflation hedge) should perform quite well, right?

Peter Schiff has now become a bull in disguise. I wait for Roubini to do the same. Much like Schiff, Roubini as well has started his shifting is doomsday prediction to one that acknowledges that things are not as bad as they seem and may be getting better!

The Worst Case Scenario (Someone Has to Say It)

Dear Author, you have done one-up on Roubini. He is Dr. Doom but you are Dr. Death! This is a very entertaining read but I was disappointed not to see that Russian professor fruitcake's prediction of America breaking into different nations one aligned with and protected by the Swine Flu Republic (AKA Mexico), one aligned with the Russians, one aligned and protected by the Canadians and so on and on. To those interested doomsday readers -- please Google the words "Russian Nut Fruitcake Professor USA breakup predictions" and you will find meaningful links.

If this is the situation that awaits us a prudent course of action is to dump all equities, buy guns and ammunition, sell your home for what it is worth, move up into the mountains and live the rest of your life in seclusion from society. Short of doing that can we have an alternate scenario for the future of our great republic? Here is an alternate scenario:

Prediction #1 – this great nation that survived and thrived its way through dozens of big and small crises since its founding will actually step up and lead the world out of the current quagmire which it was largely responsible in causing. President Obama who is much despised by the free market pundits will put a foundation and infrastructure in place for future and growth and prosperity. Unprecedented intervention (called meddling by some) by the Fed and the Treasury that has actually calmed the markets and led to the bull rally of the past few weeks will continue until the economy finds a firm footing at which point in time they will disengage just as fast allowing the newly fortified free market system to flourish and thrive into the future. At the end of the day Obama will likely go down in history books as one of the greatest presidents and leaders that led the recovery from rock bottom to a future of prosperity and wealth. Don’t get me wrong – I am not for Obama’s stimulus plan as I was for the republican agenda of giving credits to small businesses that would have helped this recession end a lot sooner. However, any spending is better than no spending even if some of it is wasteful and I believe that the impact of the stimulus plan has been greatly underestimated by economists. As a side note I am making a case that a reverse Black Swan event could be in the making for which I have constructed a portfolio that I named the Slumdog Millionaire Portfolio which is listed in my SeekingAlpha InstaBlog.

Prediction #2 – America has been stuck doing what it is not good in doing refusing to accept that a re-tooling of the education system and the workforce is needed for the new economy. That is why we build cars and things that we really are not the best people to be building instead of taking roles in the knowledge economy. Look at what Obama is doing with the auto industry. When he is done with the industry it will be restructured in such a way that either it will become competitive with the rest of the world or it will simply not exists. Look at his emphasis and investment in education. A massive re-tooling of our economy will happen over the next few years and the younger generation of today will find new jobs in the knowledge economy while the rest of the world will fill the vacuum we have created. American companies will lead in every sector as we build the blueprints for the rest of the world to implement. If you look at the situation today it is the leading American companies that are manufacturing in China and India and elsewhere that would bring the products back here to sell and now there is a momentum shift where we will lead the manufacturing of these goods and sell these goods to the people who manufactured it in the first place. We will emerge on top of the food chain being the master designers of products and services for consumption by us and the rest of the world. We will no longer be the leading consumers of the world as the rest of the world will step in as the newly created wealth will allow them to lead the kind of lifestyle we have taken for granted.

Prediction #3 – Let us step down from the macro level view to the micro view. Let us look at housing. The housing blip is only temporary. Every year America creates over a million and half households and we over- manufactured housing to far exceed demand. And now the pendulum of capitalism has swung to the other side and we are massively under manufacturing. The excess inventory we have due to foreclosures will dry up in the next year or two and we will then have a massive housing shortage unless the slack gets picked up sooner than having to wait two years. As it turns out this is already happening. Homebuilders are seeing an uptick in demand and new housing permits will start going up in the near future. A new class of investors has emerged that are buying up foreclosed homes that are helping put a bottom to the housing prices. The govt incentives to buy homes and ultra low once-in-a-generation interest rates is working as many Americans who could never afford a home are stepping into buy one. The housing crisis will be over soon.

Prediction #4 – What about the jobs situation? Being driven by consumer spending as we are for a significant portion of our GDP, the enormous pullback in spending by both people who have money and jobs and people that don’t caused an artificially low spending quarter to register at the end of 2008. However, this blip is only temporary. As people feel more secure about their jobs and the economy they will spend more as is already evidenced by the spending numbers, the consumer confidence numbers and the confidence number in Obama. Inventory numbers have reduced to a point where even a modest upsurge in spending will revitalize the need to build up inventory and thus hiring and thus job creation. It seems like people are ignoring these numbers instead choosing to look in the rearview mirror and focus on numbers that are already history. Jobs are always a lagging indicator and you will see media sensationalize job loss reports over the next several weeks while choosing to under-report new job creation that is bound to happen. If you look hard enough you will notice that jobs are being created and consumer confidence will keep going up. More and more jobs will be created in America but now we will begin to service the needs of Chindians and the consumers in the rest of the world!

Prediction #5 – This whole gobbledygook about crumbling 401K and retirement system will not come to pass because rising equity markets will undo the damage that has been done and set these systems on the path to recovery. 5 years down the road many Americans will look back and regret not having taken advantage of the greatest generational once-in-a-lifetime investment opportunity to better their future. However, a majority will find their savings replenished thanks to the equity market resurgence and also thanks to their own newer spendthrift ways that caused their savings to accelerate decently over the years! A few of us will be much more prosperous because during one of the darkest times in American history we had the common sense to know that this great nation of ours will not come to pass instead it will survive and thrive and we invested in her future.

Prediction #6 – Commercial overcapacity will be absorbed by the new entrepreneurs who will emerge to take advantage of the once-in-a-lifetime opportunity to build new businesses and new enterprises. These new entrepreneurs are the ones who gave their life to corporate America only to be disposed when the economy contracted when they were mercilessly thrown to the roadside. Of all the countries I have seen no country like America exists in that it offers the best unfettered system for an entrepreneur to build a business with the least amount of regulations and headaches and zero corruption. Expect to see thousands such entrepreneurs who took the risk today emerge prosperous a few years down the road. Never underestimate the power of small businesses as they are the ones that led us out of the past recessions and will do so again this time around.

As I have said through the body of my response I happen to think completely contrary to the viewpoints expressed by this author. I happen to think that the kick in the jewels we got during 2008 has served as a wakeup call and awakened us in that we will emerge stronger from this fiasco and will actually work our way towards greater prosperity than in the past. In other words, we may very well have a reverse black swan event in the making and I urge readers not to miss what I believe is a once-in-a-lifetime opportunity to invest in the future or America and the world.

Just Another Bear Rally?

HOPE! You stand on the sidelines and hope! I did not know that we had a bear market since 2000 and (follish me!) I thought the bear market begin with the crash of 2008! Pretty soon you will probably go back to 1930's and state that the bear market actually begin then and all the blips to the north inbetween were fake bull market rallies. And then of course back to the day of the Romans and how since their civilization crumbled in the long run we are all toast and there has never really been a bull market since the start of civilization and we can only hope for doom, death and dyspepsia in the future!

Sucker's Rally Approaching an End

Since this sucker article has turned out to be so popular I am obliged to comment again:

It is all a matter of perspective. If you eliminate the March's unnatural market lows driven by undue hyper-pessimism then the market rally would appear to have a much longer way to go. It is all a question of future earnings and if future earnings are not as bad as the bears thought and the banking industry is not going to collapse then the market indices should be at a much higher level than today. The thinking by the bears before earnings season commenced was that the correct multiple for S&P took it far below 850. Some were even talking S&P 500! However, with the earnings season in full force and the banks meltdown fear put to rest the market seems to have concluded that a proper S&P multiple should put it north of 850 and the question is exactly where it should go? Dow 9000 and S&P of 950 represent a fair valuation for the market if and only if we believe that economic recovery is taking place and that future earnings prospect justify such a level on the Dow and the S&P. There are many green shoots and mustard seeds (as a CNBC host calls them) that one can look at and conclude that such levels are plausible. As far as I am concerned I only see a trend and the trend is bullish until it ceases to be not so. So the near term course of action for traders is to continue to ride the bull until it stops to take a breather.

But of this I am sure -- there will be no correction, no pullback, for those of you that missed the rally to get back on the bus. The reason it won't happen is 1> because the previous market hyper lows were driven by rumors and falsehoods that the banking industry was on the verge of a collapse which has proven to be simply not true and 2> it won't happen because so many expect and want it so that they can get on the bus to take a ride that they missed. Everytime the market pulls back a bit there is a section of those that missed the ride that will jump on the bandwagon sending it higher so chances of a real pullback are slim to none. If you sit and watch the buy and sell programs hitting the NYSE you will notice that everytime a sell program of reasonable magnitude hits soon there is a buy program of even higher magnitude that hits sending the indices back to their levels or even higher. This tug of war only dictates that the Dow and S&P will power higher and the real pullback will begin to happen once they have breached what the market thinks are fair valuation levels. So if the fair valuation levels are around Dow 9000 and S&P 950 then quite possibly the markets may breach these levels by 5 to 10% and then pull back to these levels but not pull back to the previous market lows from the current levels.

Coming Correction Could Be a Buying Opportunity

It is all a matter of perspective. If you eliminate the March's unnatural market lows driven by undue hyper-pessimism then the market rally would appear to have a much longer way to go. It is all a question of future earnings and if future earnings are not as bad as the bears thought and the banking industry is not going to collapse then the market indices should be at a much higher level than today. The thinking by the bears before earnings season commenced was that the correct multiple for S&P took it far below 850. Some were even talking S&P 500! However, with the earnings season in full force and the banks meltdown fear put to rest the market seems to have concluded that a proper S&P multiple should put it north of 850 and the question is exactly where it should go? Dow 9000 and S&P of 950 represent a fair valuation for the market if and only if we believe that economic recovery is taking place and that future earnings prospect justify such a level on the Dow and the S&P. There are many green shoots and mustard seeds (as a CNBC host calls them) that one can look at and conclude that such levels are plausible. As far as I am concerned I only see a trend and the trend is bullish until it ceases to be not so. So the near term course of action for traders is to continue to ride the bull until it stops to take a breather.

But of this I am sure -- there will be no correction, no pullback, for those of you that missed the rally to get back on the bus. The reason it won't happen is 1> because the previous market hyper lows were driven by rumors and falsehoods that the banking industry was on the verge of a collapse which has proven to be simply not true and 2> it won't happen because so many expect and want it so that they can get on the bus to take a ride that they missed. Everytime the market pulls back a bit there is a section of those that missed the ride that will jump on the bandwagon sending it higher so chances of a real pullback are slim to none. If you sit and watch the buy and sell programs hitting the NYSE you will notice that everytime a sell program of reasonable magnitude hits soon there is a buy program of even higher magnitude that hits sending the indices back to their levels or even higher. This tug of war only dictates that the Dow and S&P will power higher and the real pullback will begin to happen once they have breached what the market thinks are fair valuation levels. So if the fair valuation levels are around Dow 9000 and S&P 950 then quite possibly the markets may breach these levels by 5 to 10% and then pull back to these levels but not pull back to the previous market lows from the current levels.

This Rally Should Have Staying Power

So we all agree that if we sat down and had a few beers and shared real life misery we have witnessed due to the tanking economy we would probably decide to go sell everything we own, buy shotguns, live out in the mountains and wait for civilization to end, correct? Yet we look a the markets that have staged a tremendous comeback and we look at each other in surprise and shake our head in disbelief. Many of us will go hang around with the same friends, drink more beer, tell more sad stories and become convinced that the markets will fall any day soon and it could be tomorrow and yet the marker continues to go up and up. Finally the day comes when we can take it no more and we plunge into the market only to watch it fall and find the label Bagholder tattoed on our forehead!

This is the problem when we try use our intellect, analyze the world events and speculate which way the market is going or not going. We are wrong a majority of the time. Peter Lynch said go find a product you love and buy the company and I found that I was right only 1 out of 100 times and the rest of the times there was information that I had no access to as the equity mysteriously started heading south and wipe out my capital before I could act from my frozen state of disbelief. So now I don't try to understand why the market is moving the way it is moving. I just follow it. The market says it is going north - I go long on equities. Like most of you I find it much easier to be a bull than a bear so if the market is going south I stay out of it. I no longer care what equities I own -- only that they show good readings on the chart and when they stop doing so I am out of them. Give this a try -- you will be amazed how handsome your returns are when you ignore the world and focus purely on the metrics.

Welcome to the Matrix!

Real Bull Market or Bear Rally? Still Unclear

Real deal or not those that follow the trend (till the bend at the end!) would have gotten on board and enjoyed a 20% plus return in just a handful of weeks! I picked high beta stocks the moment when they showed multiple buy signals towards end of March so I have enjoyed a near 50% rate of return in just one month. I strictly enter stop loss on every security that I buy. I believe this is the only sane way to partcipate in this market. I somehow can't shake the feeling that we may be looking at a reverse black swan event and that in a year or two most of the distressed securities would perhaps retest their 2007-2008 52 week highs. If that is so you can create generational wealth by taking measured risks (weekly updated stop losses) today that will have a huge payback just a handful of years down the road.