I do not know whether the rally today is the Fed, some sort of short being stopped out or something else but if there is no real reason for the rally you should not be surprised to see it unwind tomorrow.
Don't take this as talking my book, believe me I will be thrilled if the market goes higher and stays higher, thrilled.
Rationally speaking I can't imagine cycles have been repealed but shorter term the trends have been favorable overall regardless of today or tomorrow. I hope it sticks, I'm just not sure it can.
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7 comments:
Hussman et al would agree with you about caution. Technically, it could be regarded as confirmed breakout or close to it.
In the foreign sector, I added ewj. You might check the volume intraday spike. Did you not mention interest rates going up. Stronger yen, weaker dollara. Any thoughts on tapping into wisdom tree jap etfs...real laggards that could be ready for longer term up trend? What do you think?
I don't think cycles have been repealed, it's just a matter of how this one ends.
I took a look back at some similar intermediate term uptrends just before bear markets.
10/99 – 12/99 - The S&P 500 climbed from 1247 to 1469 before the market went into a period of chop into early 2000. We all know what happened after that.
5/87 – 8/87 - This three month run took the S&P from 282 to 335. The market slid for a while before falling off the cliff.
3/80 – 11/80 - During this eight month run, the S&P went from 100 to 140. Over the subsequent year and a half it almost took all of that gain back.
I just keep reminding myself, the trend is your friend.
Japan? I have never been a fan of Japan, I think there are better ways to capture Asia. I have looked at the WisdomTree Japan funds but I do have faith in their methodology.
TomK you make a crucial point, one I have tried to make. if you realize the trend is your friend but are cautious you would only lag but not miss this big move.
Barry Ritholtz just reported that todays market pop was likely due to a $4B emini covering (http://tinyurl.com/vknn7); that's a pretty big squeeze play all right.
OTOH, my long zero-coupon bonds are looking so good I'll probably sell some. Funny, I only added more as a commodity hedge to begin with. This market is really messing with my head.
This was one of those days I wish I wasn't a "hedger." With 25% hedged across energy, gold, currency and interest rate securities, I underperformed in today's powerful stock market move. And if the market's read on the Fed governor's comments about the end of the interest rate cycle is correct, we may be lifting off into a strong seasonally-abetted winter rally. Not throwing in the towel when all is just short of pandemonium about you (CNBC) is particularly difficult when you hold ETF's, which can be traded in a heartbeat, rather than mutual funds, which cannot. The impulse is to release the hedges and join the crowd for the short-term move even though the hedge may play out better over the longer-term. I don't think enough has been written about how intraday trading as brought about by the ETF has changed the psychological playing field of the fund investor. In order to feel okay about "holding on" to the hedges, you have to believe that "hedge insurance" is worth that percentage of a move you may miss out on.
That's a good point Anon, there are clearly additional psychological perils for those who have perennially dealt with OE mutual funds but now are using more ETF's. Years ago I found myself 'fiddling' with my portfolio more than was good for me but also recognized I had a need to be more active in some areas so I split the portfolio in two: A larger strategic portfolio handled using fairly strict asset allocation criteria and a smaller tactical portfolio that allowed me to move reasonably quickly where trend(s) dictated. Both approaches are disciplined -- e.g., I might have a fairly large core position in an index fund in the strategic portfolio but position size(s) must be kept small in the tactical portfolio -- but the need to move quickly on occasion was satisfied and my hands were kept off the strategic elements. Since the discipline forbade moving funds from the strategic portfolio to the tactical (but not vice versa) I provided myself additional reason to develop discipline there. FWIW.
PS: A hedge calculated to prevent the kind of loss an investor could not tolerate is the right level of hedge to have. Those who feel they can afford to lose a lot for the return they seek can go full long, those who could not tolerate a 20-30-40-50% drawdown should hedge accordingly. Hedging of course does not always mean a market short or inverse fund. JMO.
Bears, resistance is futile.
The world is awash in a tsunami of cash. Uncle Ben's got the printing presses going 24 hours a day. Some of that cash is finding a home in stocks.
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