2007 again

[blygh]

At 12800, I bail - I am still a believer that we are paralleling 2007

[ira85]

2007 again? Four weeks ago on October 2 I posted my opinion that the market was poised to break out to the down side and we’d see new lows. Copper prices were tanking and bond interest rates were falling. I made that bearish call exactly one day before the market hit the low and headed up. From the May 2 high of 1370 the S&P dropped 21% to the October 3 low of 1075. But in the 19 trading days since that bottom the S&P has shot up to 1285, a 16% gain from the bottom, recovering 71% of the loss from the high.

What now? Are we on the way to new highs in a bull market or is this a bear market rally where the rally will fizzle and new lows lie ahead? There was a bear market rally from March to May of 2008 and a lot of pundits were saying the worst was over, get fully invested. Is this 2008? The beauty of the kind of swing trading SD does is he doesn’t have to know the answer. Just recognize the current trends and ride them till they don’t work. SD seems to have a great strategy. At my peril I can’t resist the temptation to look at the bigger picture.

Clearly the current trend is up. The S&P is above all of its moving averages and just poked above the 200 day line. The 19 day rally is so steep it looks unsustainable. But so was the rise off the March 09 low. It didn’t reverse, the upward slope moderated. Dow Transportation is up about 25% from its October bottom. Copper (JJC) made a double bottom in October and a sharp rise off of that second bottom. Long bond interest rates (TLT) have a mirror image chart, a double top in October and a big drop since. Energy (XLE) is up sharply, as are emerging markets (VWO). Rising stocks, commodities, and interest rates looks like a case for a strengthening economy and strong stock market. So although we may be in for a slowdown in the pace of this rising market, it looks like all signs point higher.

But the European mess isn’t solved, just patched. It will flair again. The U.S. federal deficit hasn’t been fixed. The super committee won’t solve the deficit problems. The future of Greece, Portugal, Spain, Italy, etc seems very much in doubt. Sovereign debt still seems to be the 800 lb gorilla. It looks like it’s been hit with a tranquilizer dart and he’s sleeping quietly. But he could wake up and wreak havoc. We could have a new round of government shutdowns, austerity measures, civil unrest, and a risk avoidant stock market.

I’ll expect an up market for now, but be on the lookout for rising interest rates in European bonds as a sign confidence is failing in the latest patch job and a sign to get defensive. If Europe falters we might find ourselves re-visiting 2008 yet. - ira

[blygh]

It is hard to argue with your observations, Ira. In 2007 the market peaked in late July - The Dow fell close to 2000 pts by late August when they opened the discount window - the market came back and made a double top in early October then a secular bear market started for the next 17 months. This year the top seems to be still being made. If I could see what could drive the market higher, I would be less skeptical. The Fed sees slow growth and high unemployment thru 2013. There will be budget cuts of at least $1.3 trillion - that is a lot of money which is not going to circulate through this economy. Europe, Japan, the US are all going the austerity route which slows the speed of money which slows the economy. Where am I wrong? What can drive the market higher? Earnings?? I am keeping tight stops through earning season.

[ira85]

I saw an article this week that was making the same points as this thread, citing similarities between the bear market in 2008 and the currently developing bear market. It's at finance.yahoo.com/blogs/breakout/market-technicals-2011-2008-redux-155530104.html?sec=topStories&pos=4&asset=&ccode

Every time they patch the sinking European mess, a new leak pops up. It ain't fixed yet, so the possibility of a systemic calamity is still out there.

I think you make a good point blygh about all the emphasis on austerity measures. The Greek population hates the prospect of higher taxes and govnt spending cuts. As would any country's citizens. Now it's Italy's turn. We may face the same music in the not so distant future. Hard to see a robust market with such contractionary forces slowing the economy and adding to unemployment and recession risks.

[blygh]

I just read an alert for the coming week (11/13-20) - puts on the S&P Financial portfolio outnumber call in a 13-1 ratio in the latter part of last week. Austerity is what deflation is made of. Who benefits from deflation? People and companies with money. American companies are sitting on $2 trillion in cash. My guess is that they are waiting for prices to fall after which they will buying up highly indebted companies. Having said that - the 6 months from November thru April are usually the best six months n the year with an average gain since 1950 of 7.5%, May thru Octber average gain is 0.4%. I will be really interested in Wallmart's numbers this week. Keeping tight stops .

[blygh]

Interesting read
seekingalpha.com/article/307505-how-to-tell-if-we-are-in-a-bear-market?ifp=0&source=email_macro_view

[blygh]

Loading up on DTO (double short oil), SKF (shorts financials) and EPV (shorts Europe) - still net short equities (long on bonds)
Blygh

[blygh]

Interesting Pennant Pattern from July Highs down from October lows up - converging just where we are now - a signal to sell covered calls because the marjet should remain flat - we will see if it works
Blygh

[sd]

www.elitetrader.com/vb/showthread.php?s=&threadid=215130&perpage=6&pagenumber=1

[blygh]

I remember Granville in the 1990 - he missed the bull run of the Clinton years - kept harping about a major correction. The graph is interesting -- does it look ripe for a correction to you? Given the profound sell off in 5/ 2011 - Go away in May Come back after Labor day - in my estimation -has a high probability of recurring. I will be selling things off the next 45 days - I intend to have very few equity holdings by April 15.

[blygh]

Well I accelerated my selling today - People have made a fair hunk of change since Jan 1 and as I have often said - Go away in May - is becoming a self fulfilling prophecy. I am holding no growth stocks -nor stocks with less than a 3% dividend. There are no good sectors - consumer services is the best of a bad lot - I just don't feel confident about financials - I am short Materials, Coal, Shipping
BLYGH

[sd]

For a VERY (TOO) lengthy prediction of where Porter Stansbury believes we are eventually headed- He believes the US Dollar will lose it's once revered status, and that China will supercede the US as the go-to nation for investors.
www.stansberryresearch.com/pro/1202CHINAPT2/LOILN327/PR

[blygh]

Checking my charts today - May 16 2012 - my basket of broad based short funds - DOG SDS TWM QID have all hit their early March highs (which was followed by a sell off) - Is this resistance-

Blygh

[sd]

it's either a Contrarian Buying opportunity, or early signs of what's to come!
SD

[ira85]

In the past year or so every time the world feared a European monetary implosion, the French and Germans would work out some patch job and the markets recovered. Do they have any smoke and mirrors left? The news looks pretty bleak. Maybe the next leg down is coming about six months later than we thought last Thanksgiving.

I saw this quote tonight, "The Dow has fallen for 12 of the past 13 sessions – which, according to Dow Jones, is the worst 13-session performance for the blue-chip index since October, 1974." And this, "The Dow Theory signaled a Primary Tide Bear Market on 5/17/12 when both Industrials and Transports closed below their closing price lows of the previous 4 months," from Robert Colby.

Seems like sell in May is looking good. -ira