drbob66

What to Short When the Rally Dies

Ahh..."when the rally dies."

And when will that be? How will we know WHEN it's "dead"? Are you willing to propose a timeline? Or how about a price? What's a "reasonable" price for SH? Was yesterday's 70.72 "the low"? Or will it test the 68.79 level in Jan? It got down to 57.76 last Sept...that's 23% from today's levels! Ouch! It couldn't possibly retest it's all-time lows, could it? Then again, why not?

This seems like just another vague article on SA...predicting that "sometime" the market "may" go down. The thesis is the same: "the market is too high;" "it shouldn't be at these levels." And yet, IT IS. In contrast, the SH just made a lower low yesterday. And now a lot of those who bought SH in the past six weeks (based on this same thesis) would be happy to get their money back...if they haven't booked losses already.

The way I see it, the buyers are still in control of this market. There's no evidence (yet) to suggest that this has changed...or WILL change in the future. You're just guessing...based on "weak fundamentals." Well, I seem to recall that the fundamentals were weak in March...and yet the market went up. So if the fundamentals are still weak, why shouldn't one expect the market to continue to go up?

The upward momentum in the indices is still intact...as indicated (in the SPY) by a higher high made JUST YESTERDAY. To me, it would seem more prudent to watch how the indices trade near resistance and supports such as trendlines or moving averages. A major break of SPY through support would be a better time to buy SH...unless you're willing to try to "catch a falling knife."

Technicals: Where Is the Pullback? What Pullback?

Wow, lots of posts by "Tyler Durden" today...trying to put the brakes on this rally. I'll bet he has huge short positions and is getting VERY nervous.

Why BAC Will Beat: Understanding a New Bull Market Is Not Underway

I don't get it...have the analysts been duped into thinking that the banks are in poor shape (hence their low earnings estimates)? Or, as you claim, are they part of a "con game, " purposely keeping estimates low...even though they secretly believe the banks are stronger than their estimates suggest. I look at BAC, for example, on yahoo finance...and the high and low estimates for this quarter are $0.20 and ($0.22), respectively...with an average of $0.04. Sounds like there's downright disagreement (or even confusion) in analysts' estimates to me. Which ones are right...and which ones are part of the "conspiracy"? Hard to tell from the logic of your argument. But seeing as BAC reported a profit of $0.23 in Q12008, it looks like none of them expect BAC's yoy results to be better...again, have they been "fooled," or is it a "con game"? OR could it simply be that there's genuine disagreement (perhaps because bank earnings are so difficult to predict in this environment )?

To your other points:
"(1) Financial stocks have led this recent rally, but there is nothing fundamentally strong about any of the financial companies whose share prices have led the broad markets higher recently."

The financial stocks are not at all-time highs...in fact, the XLF is down 71% from its all-time high. It could be easily argued that the "fundamental weakness" of financial companies is still priced in at this point.

"(2) If we look at the charts of individual financial stocks, volume has been weak on these rallies. Many financial stocks have probably rallied more on short-covering than anything else, and thus the rallies will not be sustainable;"

Well, the volume of BAC on April 9 (when it first broke towards $10) was over a billion shares..the highest ever. Was it due to short-covering? No doubt SOME of it was. The question is...does it matter? The price was going UP...and it's continued to go up. And only price pays...not anger, resentment or conspiracy theories. Regardless, even the volume on Friday was 487 million shares...and up until Jan, the average volume was around 100 million. Is 487 million shares "weak volume"? I guess it depends on your definition of "weak."

Similarly, WFC traded over 376 million shares when it gave its earnings "preview"...its highest ever. Is that "weak" volume?
Up until March, JPM stock was trading around 50-70 million shares/day...since March (its low point), the average had been well over 100 million. Is that DECLINING volume? I don't think so. Did you even look at the charts before you wrote this article? Or did you read somewhere on the internet that "volume was weak"?

"(3) If we look at a chart of a broader U.S. market index above, such as the S&P 500, you will notice that the rally has occurred on decreasing volume and that a doji-star candle formation, often a sign of an imminent reversal, just formed Friday. Though the MACD is still clearly positive, the MACD is a lagging indicator;"

The volume on the S&P 500 just this past week was 29 billion...in April 2003 (when the S&P500 was at the same price level...and in the early stages of what turned out to be an impressive bull run), the average volume was less than 10 billion. Which is higher? 29 billion or 10 billion?
In addition, a "doji star" is a sign of indecision...a sign of POTENTIAL reversal...just as a resistance level (for example, 840 on the S&P500) is a sign of potential resistance...until it becomes support (as it is now). If, as you say, it's "often a sign of reversal," I would ask, "How often?" More often than not? Do you have any statistics to suggest that it would indicate that a reversal is imminent?
MACD is a lagging indicator? Well, I'm not sure of that..but, in any event, it's "clearly positive," as you point out, so what does this mean? Nothing, really...it's just a term you threw in to attempt to bolster your argument, without any real significance.

"(4) Markets in the short-term often behave irrationally but long-term fundamentals drive markets in the long-term."

The market was going up all through 2006 (and halfway through 2007)...were the long-term fundamentals good then? Obviously not...but prices went up anyway, and anyone still in the market was making money. Similarly, the fundamental macroeconomic picture was awful in early March 2009...yet the market has recovered substantially. Perhaps you were out of the market then...if so, you missed a chance to make money.

Finally, your article hardly mentions price...even though price is ALL THAT MATTERS. To suggest that one should "sell in May and go away" while prices are still going up (making higher highs and higher lows) makes little sense. I would suggest that it would be better to wait for price action to confirm a reversal...because if it doesn't, you'll miss out on further profits. With reasonable stop losses in place, one can easily protect any profits made thus far...or prevent further losses. Shorting this market makes no sense at all in view of the price action...although I'm sure there are some stocks that are "overvalued" at this point, but until they make "lower highs and lower lows" (or simply break an uptrend line), shorting them seems a high risk proposition.

In the end, the ultimate conclusion that the author makes is that the "better and less risky way" to "create wealth" is to SUBSCRIBE TO HIS NEWSLETTER. Well, my only question is...were you recommending to buy BAC when it was at $3 (now $10.60)...and after the Fed, Treasury and the current administration made it clear that BAC wouldn't be "nationalized"? Did you recommend BAC stock in Jan and Feb...when insiders were purchasing hand over fist (at prices ranging from $3.50 to $7)? Or how about WFC? I bought on Mar 5 at $8.53 (now trading at $20.26)...the same day that the CEO bought 100,000 shares (at $8.05). Were you recommending WFC in early March? Or were you convinced that Dick Kovacevich was trying to "trick" people into buying his stock by investing $800,000 of his own money? Is that the kind of "advice" that you provide (for a fee) in your "Crisis investment opportunities" newsletter?

Or were you simply telling people to "buy gold"? Frankly, I've owned some gold for a while now...and my WFC shares made me more in a month than my gold has in almost a year. In fact, the GLD chart looks like it's about to roll over. Regardless, the arguments made in this article are weak, and the real result of this all-too-common attitude that "this rally isn't real" is simply missed opportunities (or, perhaps I should say, missed "crisis investment opportunities").

Oh well, at least you can maybe make some money from the advertising on your website.

Stephen Roach on False Recoveries

I agree with Mr. Roach's analysis. The key point here is "Fortunately, the American consumer is smarter than the quick-fix Washington mindset." As he points out, "The personal saving rate has risen from 0.8 percent to 4.2 percent in the past six months alone, and is on its way to a new post-bubble equilibrium..." I'm not sure if I agree with his estimate of 7.5-10% for this "equilibrium" level (although I'm aware that this was the general historical range for a long time prior to our recent "credit-driven" expansion/bubble), but for a longer-term, sustainable recovery, a lot of Americans will benefit from cleaning up their personal balance sheets.

I don't mind if our administration urges people to spend more (isn't that what they always do?)...I doubt that too many people run out and splurge at the mall based on what our president says.

The biggest policy annoyance that I see right now is how difficult they've made it to save. They've lowered interest rates so far that bank/money-market/CD rates just plain suck. My interest income fell by 40% last year...yet there hasn't really been any other way to invest without taking big risks. I suspect a lot of older/retired citizens who are forced to live on fixed income investments are having a tough time adjusting to this near-zero-interest rate environment.

This is Not a Bull Market: Stocks Are Not Up, and They’re Headed Even Lower

"I like the name of the post but the post doesn't explain why stock are headed lower, it doesn't even mention it. "

Interesting comment. Similar in tone to many here on SA. Could say a lot about the mindset of the general investing public (or maybe just about the mindset of people who make comments on sites like this). Why would a person "like" the idea of stocks going down? A short-seller...who stands to gain from a decline? Or, an investor...who wishes to buy a favorite stock at a lower price? Or...maybe just a guy who doesn't own stocks, and relishes the idea that those who do will suffer losses?

Either way...notwithstanding the concerns expressed by some financial pundits that currents levels of bullishness are evidence of the inevitability of further declines, I'm glad to see the bears are as pessimistic as ever here on SA. Makes me think this rally could still have legs.


On May 24 08:52 AM Steven Alexander Fortin wrote:

> I like the name of the post but the post doesn't explain why stock
> are headed lower, it doesn't even mention it.

$200 Oil Is Coming While We Waste a Perfectly Good Crisis (Part 3)

Wow, 34 comments so far...I guess there are quite a few "black gold bugs" here on SA.

Have we reached "Peak Oil" already? I think the jury's still out on that one. For an alternative (although slightly outdated) view:

reason.com/news/show/3...

For an in-depth analysis, try "Energy at the Crossroads" by Vaclav Smil.

www.amazon.com/s/ref=n...

Smil's book is even more outdated (2003), but, for what it's worth, his conclusion is that we're probably not close to running out of oil anytime soon. He also discusses coal, nat gas, and alternatives. It's quite a heavy read, but interesting and informative nonetheless. The best part of the book is Chapter 3, in which he points out just how difficult it is to estimate total global oil supply (and future prices)...and how spectacularly wrong MANY have been with their predictions. No doubt we'll continue to make bad predictions...until we stop discovering offshore oilfields, I guess.

Of course, estimates of future DEMAND are probably equally difficult...who knows how many of the burgeoning Chinese middle class will eventually be car owners in twenty years? And will they be driving electric or gas vehicles...or some kind of combination? Will they be commuting from suburban communities to their jobs in the cities (like so many Americans do on a daily basis)? Hard to say what China will look like in the future...or India, for that matter.

Unlike the author of this article, I'm optimistic that many Americans will eventually move away from their gas-guzzling SUVs and adopt less energy-intensive alternatives...especially after experiencing the scare of $4/gal gas this past year. Personally, I've only owned a Corolla and (currently) a Honda Civic (both >30 mpg avg...and great vehicles, by the way)...and I still see LOTS of these and other sedans on the roads here in the Northeast. I don't view "most Americans" as "half-wits" (as the author seems to suggest)...I think we just got a little carried away this past decade or so. As with the housing bubble, we'll learn from our mistakes, and adapt.

Could the Dow Sink Another 50% by 2012?

Harry Dent? Isn't this the guy who won the "Ultimate Charlatan" Award?

www.maxfunds.com/?q=no...

Bottom line...take his predictions with a grain of salt.

As far as the rest of this article goes...it's a useful rehash of the danger still lurking in certain sectors of the economy. But it's hardly useful, since it basically concludes that the market "could go down"...or, maybe not. I would add that it "could go up"... OR it could trade sideways. I think that covers all the possibilities.

The market still has a casino-like feel to it...but certainly has stabilized a bit. The VIX just barely nudged below 40 on Fri, and is still below it's 200-day MA, which is good...but until it gets closer to 30 or so, I'll have tight stop-losses in place to protect any recent gains.

Bank of America Continues to Stand Strong

Hey, a hot-looking columnist posting on SA. It's about time!

Seriously, I hope the author's right about BAC stock (although I do agree with the earlier comment about Friday's plunge being due to fears of nationalization, not the subpoena story)...I initiated a modest long position in BAC on fri @$2.88. I know, this is simply a gamble...but the chart looks promising. On Fri, it bounced off the bottom of a nine-month downward-trending price channel...the top of the channel looks to be around $10. A nice short squeeze rally could get it there (or somewhere in the vicinity). I'll sell a portion if it goes lower than Friday's low...but I'm betting that it won't.

How the Gold Game Could End

Ahhh, the gold bugs are on high alert again...wondering why gold hasn't shot up to $1200...or $2000...or whatever price they think is the "real" value. Sure, gold will never "default" like some of those "toxic" assets on the balance sheets of so many of our financial institutions...it's at least as big a mystery as to what those are worth too (but at least some of them, as I understand it, have a cash flow associated with them at the moment).

My problem with gold right now is the price action. The bulls and bears are still battling it out...but it appears that the bears have the upper hand lately.

What's an ounce of gold "really" worth? I have no idea what it'll be worth in three months...or three years. gdclarke asks the right question above...inflation or deflation? So far, I see no signs of inflation. As a hedge against, say, a "dollar collapse," I guess it makes sense...if the USD actually "collapses," it'll prove its worth. If it doesn't, then I have no idea what the "actual value" of gold will be in the future. Only time (and price) will tell.

Still, the author - and Buffett - have a point...it IS a "weird asset." Maybe that's part of the allure...its value is so "mysterious."

Buyer Beware: 30 Biggest Bankruptcy Risks

Interesting... glad I don't own any of these.
Thanks for the post.

Will Banks Lead the Way to 1929 Crash Part II?

Great, everyone is still skeptical of this rally. That's what I like to see.

The great short squeeze continues. Onward and upward...

Voting Power Should Be Proportionate to Who Pays Most of the Taxes

This article is silly. Read the author's bio and then tell me, why should anyone take this guy's "ideas" seriously?

Furthermore, I thought this was an investing website. There's no useful information in this article...it's just one guys (questionable) opinion about politics.

What a waste of time.

Is a Gold Correction Imminent?

For an alternative viewpoint, see "The Recurring Gold Price Bubbles":

www.marketoracle.co.uk...

I don't doubt that gold prices will "correct" significantly soon...it's had a spectacular run. But I also wouldn't be surprised to see that $1000 is the new "support" level. I see very little FUNDAMENTAL reason for the US dollar to strengthen significantly. Our economy is still a mess, and our political leaders continue to overspend with reckless abandon.

Dubai: Gauging the Impact

Much ado about nothing.

Next week the talk will be about Black Friday sales results.

The False (Chinese Driven) Rally in Copper

China is buying lots of copper because it's still relatively cheap (or, at least, it WAS when they started their shopping spree) and they're afraid their dollar holdings will shrink in value in the future (which is clearly Bernanke's intention). This article also suggests that China believes that copper might be a part of a new global currency:

www.telegraph.co.uk/fi...

In any event, it's clear that these Chinese Communists are pretty shrewd capitalists after all.