Rally Getting Tired ?
I have been pretty steadfastedly bullish throughout most of this move upwards.
Given the recent market action, I am now starting to pull in my horns a bit, as this rally looks to be getting a little tired and showing signs of technical deterioration.
We may yet see a new high in this move off of the lows (though that is not guaranteed). However, I see a significant increase in the odds for a fairly substantial correction — in the 5 – 15% range — over the next 60 days.
5 factors are making me more cautious:
1) Over the past 4 days, we have had 3 failed rallies;
2) The number of New Highs on the major indices is contracting;
3) Stocks seem to be reacting far less enthusiastically to earnings beats then they had been;
4) The Transports have been acting squirrelly lately;
5) The S&P is forming an Ascending Wedge (more on this later today).
One bonus factor: I am about to do some extensive traveling (Dallas, Austin, Detroit, Santa Rosa, San Francisco, Berlin (GER), Chicago, Miami, Aruba) over the next 5 weeks. Mr. Market is notorious for waiting for me to be out of the office prior making his big move (Bastardo!)
~~~
Note: This is not a major call, it looks to me like more of a minor reversal. (Sometimes, those can evolve into something more serious). The reason I expect it to remain modest/contained is the ongoing stimulus to the markets of zero percent interest rates . . .
October 27th, 2009 at 11:34 am
Good contrary indicator in my buddy James:
Economy and Market Going to Blast Off from Here, Altucher Says
http://finance.yahoo.com/tech-ticker/article/361005/Economy-and-Market-Going-to-Blast-Off-from-Here-Altucher-Says
October 27th, 2009 at 11:37 am
Right with you, Big Guy. When I sold AAPL last week and started a position in DXD, it was clear in my mind that there was a shift. The “BTE” earnings/news were met with lackluster performance. I pointed out on this board that one need look any further than the Dow chart. Simple chart with volume since Sept 19. Told you everything you needed to know about the mood of the market.
October 27th, 2009 at 11:41 am
James is really your buddy?? Wow, that’s quite a blurb. “Consumers will find jobs much easier to get, and the resulting optimism (and income) will prompt them to start spending again.”
Again, I ask this question everyday to anyone who spouts this hiring nonsense – where are the jobs going to come from??? We’ve had negative employment for the entire decade. Is it just magically turn around with unicorn wrangler jobs? Until someone lays out where all the jobs are going to come from, they’re just talking undeniable nonsense.
October 27th, 2009 at 11:48 am
Thanks for the update BR. Let us know when you think market is prime for next leg of upmove.
October 27th, 2009 at 11:50 am
Sorry, BR, but one last point regarding Consumer Confidence. That’s your leading indicator for the market. Look at its peak back in July ‘07 and subsequent rapid decline even as the market had a couple more months of “rally” left to hit its all time high in Oct. ‘07. Now we’re seeing Confidence turn downward again. In my opinion, that’s a great indicator of where we’re heading.
October 27th, 2009 at 12:24 pm
Barry,
Just as a question, how many of the earnings beats were from increased revenue and not primarily due to cost cutting?
..Just wondering.
October 27th, 2009 at 12:24 pm
If the opportunity presents itself when you’re in South Florida, I’d consider it a privilege to buy you a drink or two at the tavern of your choice.
October 27th, 2009 at 12:25 pm
Anybody else looking at UNG for potential entry point?
If sept was the low – now looks like a good time to buy.
Gordo
October 27th, 2009 at 12:36 pm
There is a lesser known indicator called the “Ashpelham2 Vortex of Death”. It basically states that as long as ashpelham2 is in cash, the market will surge upward, with very small corrections downward, if any. However, once ashpelham2 finally decides to move into equities, there is a top, and then a subsequent downturn. Be wary……..for there is no known method of diversification that can overcome this….
October 27th, 2009 at 12:39 pm
Japan’s interest rates remained at zero for twenty years. How’d that work out for the stock market? If you think through the dynamics of zero percent interest rates, you’ll soon conclude the market must fall on these dynamics. Now, throwing in other factors could play a different tune………….
October 27th, 2009 at 1:43 pm
Regarding the James Altucher call (Hey its Ted from “How I Met Your Mother”!!)
The guy has NYC blinders on – he can’t see what the average working man or woman or small businesspeson has experienced in the past decade – Life is getting more expensive and paychecks / incomes aren’t keeping up. Weak jobs and wages = Weak consumer = Weak profits = Weak economy and stock market (over the long term). Short term a corporation can improve profits by cutting jobs and inventory to improve profits (Situation of 2009). But once companies are cut to the bone and the consumer remains weak (due to lack of new jobs), then the market will be back to 2008 levels or worse at some point in 2010.
October 27th, 2009 at 1:53 pm
@gordo365:
I have an order to trigger if UNG breaks above $12.23 (about 14% above current price). Basically the high for the last 2 months has been $12.22 and it hasn’t broken above that. My idea is it might be worth trying to buy on a breakout. Otherwise, I don’t see another logical price point, unless $9.00 proves to be a floor. We’ll see I guess =)
HCF
October 27th, 2009 at 2:02 pm
The uptick in Jobless Claims and the downtick in ConCon are not providing any solace right now. A 5-15% drop is right in our range as well followed by a rally to Dow 10500. A pop to 10500 is not out of the question before any correction of 5% or more. The prospects for a deeper pullback or bear market in 2010 are greater. It being a midterm election year…
October 27th, 2009 at 2:03 pm
Supply and demand imbalances for stocks win out over 0 percent interest rates. This was an asset allocation rally, loosely connected to the economy. Money moved from bonds into stocks as stocks were undervalued at 6500. Now, at Dow 10000, we have the opposite. Lots of eager sellers. Institutions are selling their stocks and looking for a safe place to hide, presumably back into bonds.
October 27th, 2009 at 2:27 pm
Thanks HCF – makes sense to buy trend change vs. trying to find the bottom etc.
October 27th, 2009 at 2:34 pm
BR-
a zero percent nominal rate can still be a large real rate in a deflationary environment-
remains to be seen if any GDP growth is ephemeral- which is most likely- ultimately the only real way for the economy to recover is by deflation and credit $ destruction-
otherwise- it is all borrowed time until it sets in to correct the imbalances-
tax credits for cars and homes may stimulate demand- but it is temporary in nature – and only borrrows from future demand-
so the piper will be paid in the end
October 27th, 2009 at 2:47 pm
[...] predict tops and bottoms, but few successfully get their timing right. Jeremy Grantham and Barry Ritholtz sit in the latter category, so when they offer their forecasts, investors would be wise to take [...]
October 27th, 2009 at 4:11 pm
Famed Market Timers Say Rally’s Getting Sleepy
Many market observers predict tops and bottoms, but few successfully get their timing right. Jeremy Grantham and Barry Ritholtz sit in the latter category, so when they offer their forecasts, investors would be wise to take note.
October 27th, 2009 at 6:13 pm
as soon as the dollar resumes its downward trajectory, equities should regain their footing. I think all of the recent stock market behavior smells of an organized short squeeze in the dollar.
How long does the rally in the dollar go on? That is a good question, but fundamentals don’t support much of a lift. The U.S. economy remains in tatters.
October 27th, 2009 at 7:00 pm
Going to Detroit. How much of the city do you plan on buying to create Barrytown?
http://www.digitaljournal.com/article/281075
Job Creation is still a concern for Main Street, is Wall Street not far behind eventually:
“With each passing day, the schism between Wall Street, Washington and Main Street widens. The American people grow increasingly incredulous with the complacency of Washington leadership.”
http://www.huffingtonpost.com/lynn-tilton/obamas-small-business-pla_b_333403.html
October 27th, 2009 at 9:49 pm
“How long does the rally in the dollar go on? That is a good question, but fundamentals don’t support much of a lift. The U.S. economy remains in tatters.”
keep hanging on to your bullish S&P stance- now that rally’s been around- and you sound like a bear on equities in May asking the very same question-
but maybe you have it all figured out- lol
October 28th, 2009 at 2:33 am
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October 28th, 2009 at 6:30 am
call me ahab – I’ve been neutral on equities, bullish on commodities, bearish on treasurys since May. Anyway, every speculator is entitled to change his/her mind on a whim. If you are concerned with being correct, you will probably get your ass handed to you. I’m sure you are familiar with that sensation because you seem to be a real jerk.
Why don’t you find your mother and get a hug. Maybe you’ll feel better about things.
October 28th, 2009 at 8:01 am
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