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Tape vs. Growth

Posted By Barry Ritholtz On May 19, 2005 @ 2:57 pm In Economy,Markets,Trading | Comments Disabled

Since March 29, I’ve been pretty vocal in a Bear call. And to be brutally honest, I do not place a whole lot of faith in recent government statistics on GDP, NFP or CPI.

That said, there’s a simple rule that must be honored:  Don’t fight the Tape.

I can give you dozen’s of reasons why the NFP was as artificial as NutraSweet, why a core CPI is only relevant when Joe Consumer has no energy or food expenses, and why the GDP data is a farce.

It matters not a whit. The lines have been crossed, and the underlying strength must be respected.

Doug Kass has an entire missive [1] explaining why the unwinding of home prices could prove as grave in 2006-08 as the bursting of the stock market bubble in 2000-03.

And he’s probably right about it. There’s a disaster looming out there somewhere — I can practically smell it. Still doesn’t matter. When the underlying trend shifts, as it decisively has, you must adapt to the market — not the other way around.

Sure, Leading Economic Indicators are down for the 4th month in a row; NY Fed, as well as Philly Fed, were both appreciably weaker. Its only background noise.

Looking at yesterday’s data, the Nasdaq’s volume was the best looking of the group, and I expect that’s where most  of the gains will come from. I’m still deploying cash tentatively. My stops are a little tighter than usual, a few points below our prior levels of 10,400, 1,181 and 2,000. As the markets move higher, I am moving them up to breakeven, and then higher still.

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[1] missive: http://www.thestreet.com/p/rmoney/streetinsightspecial/10224376.html

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