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Time for a Bounce?

Posted By Barry Ritholtz On November 16, 2012 @ 7:26 am In Markets,Trading | Comments Disabled

Markets have slid about 2% on two consecutive weeks. SPX is now off its September highs of 1465 by about 110 points or 7.5%. So far, this is a mild, even orderly correction.

The negatives have been a) an inability to muster even a modest bounce; b)despite rising bearishness, we are not at an extreme sentiment level; c) markets are seemingly reacting to both good and bad news with selling.

I would also add that I believe the media emphasis on the Fiscal Cliff is misplaced, but that remains the dominant meme. Many traders, for good or ill (mostly ill), take their cues off of that.

The positives are a) earnings could have been much worse; b) Housing remains a bright spot; c) consumer sentiment is good, business sentiment seems to be improving;  d) Greece has not caught fire and burned to the ground.

If we get a resolution to the Fiscal Cliff issue, that too would engender a short term rally. Indeed, I assume that part of the reason short interest has not spiked is the possibility of a resolution.

Regardless, watch for a bounce today or Monday. The key is whether it attracts some volume and conviction, or fails at new resistance levels, of which there are many.

Be back shortly . . .

 

UPDATE: November 16, 2012 8:23am

An emailer asks: “Does this change your allocations in any way?

No, I have not changed my investment posture in light of any possible bounce. When I make asset allocation shifts, it is because I am concerned with time frames of 2-4 quarters (Not days or weeks) and percentage changes in asset classes of >15% or greater.

The day-to-day noise and the 5-10% moves never enter our decision making. We don’t try to catch those, don’t know many people who can, and regardless, don’t want to have the high turnover, expenses and tax liabiilities even if we could.


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