As earnings estimates fall in ‘09, the stock markets falls with them, and multiples become more compressed as volume continues to dry up.

I have been short term bullish, long term bear from a technical stand. The charts still say this is what to be. For a long term investor, I think the risks are still high. If you look at some moving averages on weekly charts of major indices, mid-term moving averages are nowhere close to crossing long-term moving averages. This very simple exercise of following moving averages has yielded excellent results for several decades and has avoided catastrophes. The trend for the market is still negative and deserves respect, unless you are a trader. I don’t work with traders.

The equity market will not solve this mess. The credit markets will. If you see the credit markets acting completely normal, the equity market will soon follow. Part of the reason I think so many strategists have had such a difficult time with this year is because most only have a point of view in equities. Everything that has happened this year in the equity markets is symptomatic of the real problems elsewhere (credit). Until some rigor ous work has been done to incorporate the credit markets into a strategist’s thesis, you are simply listening to a doctor talking about a cough that doesn’t know if it is an upper GI infection, bronchitis, whooping cough, or something more serious like a small cell tumor… Does this make sense?

The TED spread indicates lending is better than it was in October, but not much else. It still indicates a stressed credit market. Most other spreads are equally if not more horrible.

There is no indication to me that the market has “built in” anything worse than a mild recession. There are too many “unprecedented” financial numbers popping up all over the place for this recession to be anything buy “Abby-something”. Abby Normal? Yeah, that’s it…

Could we see a rally happen to 1000, or 1100? Sure. The first major rally in 2000 was in excess of 30% before it petered out and hit a new low. The second was in the high 20s. The third was similar… I am not saying there won’t be rallys. I’m saying the rallys are for suckers because most participating have no mechanism to recognize that it’s over. And if you don’t have all the tools, you shouldn’t be playing b/c you are going to get hurt.

Hope and anticipation are part of the Christmas story, but they shouldn’t be part of your investment process.

Happy Holidays to you. I agree with you, but my jumping in w/ both feet 6-8 weeks ago cost me so I’m sitting out til next week. I still think we have to go through an actual rally before the collapse.

http://www.nytimes.com/2008/12/22/opinion/22krugman.html?_r=1&partner=rssnyt&emc=rss.

How do you “discount” an economy that has been hollowed out from the inside?

To put it another way, Mish says: rally into Inauguration Day, then release the hounds of hell…..

“Go not to the Elves for counsel, for they will say both no and yes.”

From a technical perspective, we have a massive double top on the 20 year monthly chart. Very bearish going forward. On the daily chart, we approached but could not get through the 50 day EMA. I suspect we’ll try again, but until we do, no reason to go all in on the buy side. Looking at those two charts give me the uneasy feeling that we’re going to 500-600.

From a very simple fundamental perspective, we should, as business conditions deteriorate, move closer to a traditional bear market PE ratio of in the 10-12 range. Couple that with many earnings forecasts on the SPX of $50-$60/ per share and we are in that 500-600 range on a fundamental basis as well.

I know that the bad news is typically baked in, but what is typical about this market? The VIX is still in the mid 40s. The retail investor has pulled back but not given up on stocks yet, hence, no capitulation. Investors seem to have trouble conceptualizing that the auto bailouts, for example, may wipe out the common equity. That’s pretty basic stuff, especially when someone like DB has the stones to slap a target price of zero on GM, yet on the bailout news they rallied. Not exactly a rational, efficient market IMO.

Finally, Mr. Lane may be a genius, but his intro says he is a technician and all he looks at are fundamentals, and commonly discounted ones at that. I may be wrong, but it sounds more like cheerleading or wishful thinking than substantive analysis to me.

My main reservations going forward are: a) continued write-downs, b) hedge fund redemptions and c) heavy job losses in January and February. The latter in particular could lead to a re-test of the lows or to making new lows.

But I think that there is still room for certain sectors to rally substantially during Q1, while others (retail/banks) can be predicted to struggle. Some of the commodity-related stocks may already have bottomed in November.