The Trap is set: Last Chance to Reposition

Markets have reached the point where they are so
oversold they are due for a corrective bounce. But I expect this bounce to be
short. It should be used as an opportunity to exit most long positions,
especially those that are cyclical, rate sensitive, or of the high

We suggest using the lift over the next 2 weeks to sell

Several factors point to a rally: AAII
sentiment shows Bulls at 23%, down from 45% two weeks ago; Bears now measure
41.9%, up from 24.8% over the same time period. Internal measures show
moderate short term oversold conditions
. NYSE Oversold indicator now
measures -58.12 (below -50 is significant). The NYSE McClennan Oscillator reading of –256 oversold (-200 is significant) similarly
suggests a pop.

Despite all these oversold signals, we remain
concerned about the ongoing deterioration in Market internals and the Macro
environment. The Advance/Decline Line continues to soften, as have Nasdaq
52 week Highs/Lows
(See chart nearby). Fund Flow is light, and
Trend lines
have also broken. Upside moves are unable sustain any gains, as
Momentum fades.

The Macro-economic environment is also weak: GDP
has softened, personal income is not keeping up with prices, just as consumers
have lost the ability to do cash out refis. Money Supply has been
throttled back, and the Yield Curve has flattened. An oversold market
that cannot rally on positive news reveals weakness; The Market’s inability to
respond positively to a major upside revision from GE also does not bode
well. It also suggests a market lacking leadership, as well as a decreasing
appetite for US equities.

We also believe that the counter-trend
in the Dollar, Gold and Oil are of a short term,
corrective nature. They can run long enough to sucker in lots of traders. Once
they resume their prior trends, we will see plenty of players trapped higher,
and desperate to stop the pain.

Finally, while everyone suddenly discovered last
week that (Horror!) producer AND consumer prices have been going up, we are
starting to become increasingly concerned about the macro impact of Derivatives.
From Fannie Mae (FNM) to AIG to GE to Bershire Hathaway, too many US companies
have turned into heavily camouflaged Hedge Funds. Skipping over the esoteric
details, this will end badly.

This is an intermediate top call.

Take advantage of higher prices, as I expect this rally to run out of steam  by early April. The Market risk is a sell off into the Summer.


Category: Investing, Markets

Chart of the Week: Nasdaq Comp: 52 Week Highs/Lows

Category: Markets

Aussie Home Prices Plunge

Category: Economy

Ugly Quote of the Day

Category: Investing, Markets

(Why) You Suck at Investing

USA Today had an interesting article this past week (it happens). The discussion was on the fact that Most Americans no good at investing. A more accurate title would have been "Humans not good at investing." There’s a very specific reason for this; It is something I am in the middle of writing up, and…Read More

Category: Apprenticed Investor, Investing, Psychology, Rules

Fund Flows

Category: Investing, Markets

Dot-Coms vs. Real Estate

Category: Finance, Markets, Psychology

Stock Market Extremes and Portfolio Performance

Category: Investing, Markets

An Excuse for Bad Advice

This chart has been used primarily as an excuse for bad investment advice: Source: Marketwatch Why an excuse? It builds in an out for the advice giver: See, you just have to hold onto stocks long enough . . . then you will outperform other asset classes. Now all we need to do is figure…Read More

Category: Books, Investing, Markets

Death of Equities II

As long as we are talking magazine covers this morn, I am still waiting for someone (anyone) to find this (previously mentioned here) August 13, 1979 Business Week magazine for me: click for larger graphic Many thanks to Paul for the photo (Does this mean you have one?)

Category: Media