From the bottom to the top the chart shows a rally of 9.3% in about a month. That is an old chart with the date removed.The current rally is a little over 10% from the low in mid-March.
The rally charted felt pretty good. The rally now feels pretty good.
A while back I started using the term feel good rally (I may have made it up, not sure if I can take credit for it or not). The context of saying that is if the market is in the bear that I think it is, we will have several feel good rallies along the way.
Feel good rallies are a normal part of the bear market landscape. This is either a run of the mill feel good rally or I am wrong and this whole financial crisis/housing price deflation/bond market distortion will turn out to be nowhere near as important as many people thought.
What do you think is more likely?
I am convinced this is a bear market rally, there is no convincing me otherwise. That does not guarantee I will be right of course. I think what I think but regardless of what I think I will add a name or two or shave off some double short if the S&P 500 goes back above its 200 DMA. For me, re-equitzing would be gradual because it could obviously go above the 200 DMA for a few days and then go back under making for a real fakeout.
In the past some have posited that the 50 DMA crossing over the 200 DMA in either direction might be a more accurate trigger point for getting defensive or re-equitizing, depending on the direction. That might indeed be a better way to go. For this cycle I will stick with 200 DMA and between the end of the current bear, regardless of when that is, and the start of the next bear market I'll try to figure out if I think the crossover is the better mousetrap.
The bigger macro for me is having an objective point where to go on defense and then a point where to re-equitize. The goal has been simply to miss a big chunk of down a lot. If the specific tactic turns out to be the best strategy that's great but it far from the priority.
BTW the chart covers the first quarter of 2002. The S&P 500 was about 34% lower four months later.
19 comments:
My models are at an interesting juncture right now. The trend components are mixed; The S&P 500 and Value Line Composite are both above their 75 day moving average, but have yet to breach the 200 dma. Even if we do break above the 200 dma it isn't very meaningful from a forecasting perspective. We saw the same thing happen in '73, '01 and '02 just before a resumption in heavy selling.
The sentiment components of my timing model are beginning to give some signs of over-optimism. As a result my long allocation to equities took a pretty sizable dip last week and I expect the same again this week. In short, it appears we may be nearing the end of this intermediate term rally.
Longer term, the succession of interest rate cuts may start to kick in soon. Take a look of the fed funds chart on my site illustrating what happens subsequent to "the last" cut. (www.regimenia.com)
Also, I believe basic materials, commodities, and oil may be over-extended. We might see the perfect storm of economic stimulus and easing prices - at least for a few months.
I've unloaded a few positions in the kids's accounts this week, and added a small energy hedge. Layoffs here in Silicone Valley are starting in earnest, this week - happy May Day!
And I've already heard it's time to sell in May and go away...
I don't see the chart. I am using FF browser.
roger,
i agree that it feels more like a feel good rally. in any case, the markets appear to be at a critical juncture--the s&p 500, nasdaq, and valueline indices are all steadily and now closely approaching their 200 dma from below while the djia, dj transports, and dj utilities already all broke through. the powerful strength of the transports seems difficult to reconcile with the rest of the economy and with the high price of oil.
similarly another anomaly occurs on the breadth side where the nyse advance-decline line shows a sharp bounce off the lows in march but appears to be right at resistance (if you believe in resistance for an a-d line) while the nasdaq a-d line shows no signs of any kind of rebound, just a flattening of the downside.
(anyone interested in these charts can find them at: http://stockcharts.com/charts/ and look at "market carpet" to view a variety of indicators.)
on another topic, i defended the nakoma absolute return fund (narfx) back in jan or feb from someone who criticized their results. now, however, they rank dead last (100th percentile where 100 is lowest return) year to date for long-short funds. roger, any idea of what might be going on with them? from their market letters (on the web site), it looks like they zigged into gold when they should have zagged, but i'm not sure this explains all the weakness relative to their peers.
anon, occasionally i have trouble with seeing an image on blogger blogs, especially with Adam's site I would say to reload or just click on where the image is and then it will load.
re NARFX, which a couple of clients own, they have had a sort of pair trade on oil that might be working agianst them, also they have not like discretionary which is correct from a how this usually work perspective but discretionary as measured by XLY is actually up a little YTD and a lot off the low.
Roger,
Staocks aren't taking the employment figures quite as well as I would have thought. Any reasons you think?
Banker
when the jobs number first printed it seem very puzzling. not knowing more than that it seemed like we would hear more later.
since then the scuttlebut is focusing on the birth/death adjustment. This has mattered in the past too.
One other possibility if birth death has nothing to do with it is that we have had a big move off the bottom. if the idea that the big move off the bottom was not justified, ie happened for no reason, then it could just as easily reverse course for no reason which would be consistent with bear market rallies.
To Tom K's comment: During the last recession, the fed eased most agressively in 2001, yet the markets continued down for another full year. See also http://www.the-privateer.com/rates.html
Odds may favor a bull market down the road, but not now. I'm with Roger, looks like another bear bounce.
Regarding the jobs figure that just came out. This blog site.....
http://www.trivisonno.com/investing/withholding-taxes-chart
brings up the more accurate figure of "withholding tax". It seems to be a better indicator of reality.
I hope it is time to go short for a while, but do not fear we will have another feel good rally soon.
SH is about the only thing I own (~14% of my portfolio added this week)
Many, many years ago someone told me that investing was a crapshoot and a gamble. I disagreed. Through the years, with methodical investing (including a few dumb moves), I have done well.
However, in these present times, I am having my doubts.
In the past, I always believed the US would be strong and would lead the world forward. Now my theory is shot full of holes. Guess I'll be following the method of one national advisor, "do your homework, close your eyes, hold your nose, and hope for the best".
Roger,
Is the Ag stock move over or was this just a head fake to the down side in the short run? Stocks like Pot and Mon have done so well, but they seem to be corrolated to the weak dollar. can these stocks move up as the dollar strenthens? Also what do you think this merger with Msft and yahoo do to the Msft stock.
Thanks,
BWJR
My bet on UYG (ultra financials) is paying off nicely, ditto AAPL. Also heard an analyst on fastmoney predict Citigroup will double 12-18months from now. Bottom line: Models,schmodels; if a stock's chart is trending up, buy; when it trends down, sell. It doesn't have to be anymore complicated than that.
go over to Barry's site and find the Don Coxe video from yesterday or the day b4 and draw your own conclusion. WRT to MSFT and YHOO, no dog in that fight, not much interest.
Roger,
To me, the 20 month or 400 dma seems to provide a much clearer picture about where a market is headed. The S&P500 just crossed it today but closed just below it. Looking back over 30 years, this usually has implied a change in trend (i.e. from a downtrend to congestion or an uptrend) - Just a thought!
CA
Roger,
Thank you for the info on AG through the Coxe video. Currently I have about 7% in Ag with POT and MON. Does that sound about right. It sounds like a few more points increase would be OK? Do you agree?
Thanks,
BWJR
Bill, that becomes a compliance issue for me. No can do.
Roger,
Sorry!! Thanks for the info from the video. I understand what you mean.
BWJR
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