A while back I started using the term feel good rally to describe a normal part of bear market activity and the run in the last month is exactly what I had in mind.There are plenty of examples of fast and furious rallies, like the current one, occurring during bear markets. These types of moves are built on hope, some greed and maybe fear of missing something.
Hope, greed and fear are all emotions and in times like the last month they can move the market. However worried (another emotion) most people were on March 9 they are very likely less worried today which is reasonable after a 28% lift.
Clearly the rally has been big and as I have been saying since January I expected a really big bear market rally; even bigger than the 28% we have had thus far and maybe we are on the way to even bigger but obvious to long time readers I expected even bigger to have occurred before now.
Hopefully it is clear that a 28% rally in one month is a panicked move and not a sign of market health, that you might be feeling good perhaps supports the notion. Over the years I have been involved with the markets I have tried to pay close attention to these sorts of market events in order to remember what the trading looks like and how people react as the patterns and sentiment do repeat cycle after cycle even if the details of the event are different.
Knowing that most people deny problems at the start of a bear and knowing that many folks chase bear market rallies which then potentially extends them a little further (as two examples) can help avoid mistakes. For anyone new my positioning has been the same for a long time, I am in there but with a high cash level. Lagging a big move is not a problem but if this whole thesis is wrong and it is a new bull market then missing would be a big problem.
16 comments:
I was feeling good enough to actually peek at my IRA balance yesterday. Since I'm a perfect contrary indicator, you can be assured that the move back down is just around the corner. Seriously, Bespoke points out that the market is now trading at historically overbought levels, relative to the 50 dma.
The nature of a bear rally really hit home for me yesterday as I am in BAC. Having it go up 33% in a day with no real profit taking or regular pullback like it normally used to was actually concerning to me even though I made a great profit. That is certainly a new emotion for me lol.
It was a good sign to me that things are just insane.
While I am no financial expert, it would seem to me that if the problems and conditions that got us in this mess haven't changed then we really aren't out of the bear. I haven't heard news that the government and banks have fixed the causes of the credit mess. Sure they have written off a bunch of bad credit but ummm, what exactly are they going to do to prevent this from happening again?
Nor has there been reports of millions of new jobs created to replace the ones lost last fall.
I'll enjoy this rally for what it is but I have my finger on the sell button.
Histroy repeats itself,cliche, but so very true.
I'm sure we have all read this is the largest one month move since 1933...I for one am not going to take the exception as the rule....
And when you can fit in some Simpsons why not "If Springfield is so good, how come we beat them in football nearly half the time...." I feel that this young man from Shelbyville is how people are viewing the current "rally".
Thank you for the posts Roger - have a good weekend, I hope you and your family are doing better...well even!
The underlying problems have not been addressed. We still have massive debt relative to GDP, tons of ARMs adjusting next year and year after, credit card defaults increasing rapidly, commercial real estate feeling the pinch now, and misleading stats on housing.
It seems this feel good rally is due to the actions of the Fed/Treasury, which is just giving a fix to the crack addict, not actually addressing the underlying addiction.
But, maybe it is all baked in the cake.
After the brilliant Trading Places and Wall Street we haven't had a decent movie with trading as a background. Oh, there was the equally brilliant American Psycho.
History definitely repeats itself, my IRA is back to 2001 levels.
Ever since the "tea party" remarks of Santelli and other daily personalities on CNBC, it is apparent that someone has instructed this network to turn left or shut up. Adding Howard Dean (good grief!) as a paid talking head on this business channel is but one example of the current post-Cramer smackdown and mea culpa (notice his change of demeanor towards BHO?) by Jon Stewart that has done nothing but question the ability of personalities on this network to speak their mind.
CNBC still has cachet with investors and does provide timely market information but unfortunately CNBC is now a politically driven entity - just like the other cable "news" channels. Kudlow's days must be numbered.
Anonymous 7:08...
check out "Boiler Room"
Roger,
I'd feel a lot better (more confident?) if this rally had experienced a few meaningful pullbacks on the march upwards. I mean come on....5 weeks of basically straight up????
Jan
Can you clarify what you and "the industry" define as a bear market rally vs a bull market? The market is up 28% which is more than the normal 20% move usually identified with a bear/bull move. So is it a bull market? Does the S&P have to get back to its all time high ...or 20% over that high (some thing like S&P 1800) to be considered back in bull mode? If so we can be in a bear market for years/decades while equities perform very well.
While I am interested in the answer to the definition, I'm also trying to say that I think all the general discussion about if we call this a bear rally, bull market, or feel good rally is getting very silly. Wouldn't the discussion be more useful if we discussed short-term(month), mid term (year), long-term (decade) trends. For example, IMO I think equities are in a short-term up trend that can go another 10-20% on momentum, but still in a mid term down term until some economic excesses "revert to the mean". The long-term seems less clear to me. Whatever a persons view, discussing the label of the market seems to just make communications less effective and more emotional.
Thanks very much anon 7:56 - will look for it online.
Anon 8:49, if I may be so bold.
I think it's only a new bull if the rally holds above 20% (from bottom) for a significant length of time. Predicting a new bull is a matter of guesswork about millions of people's expectations and about the medium-term strength of the economy, ie impossible.
Which leads me to your second paragraph; who determines what medium term is? And does the definition change with asset classes?
This is probably still a bear market, because the last time we tested the lows we broke right through them and went lower.
For this to be a bull market, we have to re-test the lows and hold them, then bounce off them to go higher. Why this is the case, I don't know, but unfortunately this is what history has taught us. Maybe Roger would know if a bull market ever started without the lows being held. That's interesting! I hope so.
thanks,
bwjr
The 1982 bear bottom is an example where the market turned straight up with no retest.
See: http://dshort.com/charts/bear-recoveries.html?80-82-recovery
I'm not saying this is happening now. The '82 low came at the end of a secular bear cycle stretching back to 1968.
Just a case in point that "the" bottom cannot be identified with certainty until well after the fact.
No buy-n-holders wringing their hands over bull vs bear. It doesn't matter!
when you say a high cash level, do you really mean just money markets? Or do you use short term, low duration funds like ETF's,BSV, CSJ, MBB which have much better yields at higher risk, not alot though.
i mean money market. this is not the time to squeeze out yield.
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