More Reader Questions

Before I get into the questions, Kudlow took the under on the jobs report. I am shocked, really.....

....And he was wrong. This is a good report but we need to see follow through next month for today's number to be validated. Otherwise it is a blip. I had been right in predicting this number every month that I've had the blog until last month when I took the over and was wrong. For the time being I feel like I have lost touch with the number.

Ray asks if oils are a short due to Exxon now having surpassed GE for the largest market cap. Yesterday I posted in the middle of the day that I didn't think the stock market believed that $55 oil could stick based on a subdued reaction from oil stocks and that reducing exposure into the strength for short term people may make sense. If the question behind Ray's question is about a bubble I would say no. I am aware of two bubbles since the SPX came to be in 1957. There was an energy bubble in the early 1980's and the tech bubble in 2000. In both instances those sectors grew to be about 30% of the index. Energy, today, has grown from 7% to 8.6% of the index. The stocks could correct but the run up has not been enough to cause an implosion.

I don't short stocks but to try to bet against the current momentum could be very difficult and would not be my type of trade. Ray also asks about rotating back into tech. Ray mentions some names he owns but did not tell me what percentage they make up in his portfolio. There is no visibility for good things to happen for tech anytime soon. That probably makes this a decent entry point for someone that has no exposure but the group may lag for a while. I remain underweight for the time being but I am quite certain that prices today will look very cheap in the future but I don't know how long that will take. The reason for my underweight position is that it still feels like the wrong sector for the next couple of months or so.

Another reader asked for details on the trend indicator I mentioned yesterday. I have written about this before. Bear markets don't start with crashes they rollover slowly. An average 2% decline, three months in a row has some precedent for starting a bear market. It happens less frequently than you might think.