Wednesday, October 3, 2007

Narrow Correction

Interesting to see the major weak action today in agriculture, metals, and solar; accelerating into the close.

In a normal market when the leaders start to fall, you get worried as that is a precursor to a larger market fall. However in the "new paradigm" of "Ben Bernanke world" where there seems to be a floor on the general market, who really knows anymore.

Let's see if this is the first shoe to fall or just a narrow shakeout to bring some sense of valuation to the market - I was happy to enter some long side buys on (some) technical support today in these sectors, but the stocks I entered weakened even further from my buy points - no big deal as these are longer term positions, and it was an entire sector weakness, not just the names I entered.

Now if we start seeing this weakness spread out to the Apples (AAPL) and National Oilwell Varcos (NOV) of the world, than just about all our recent leadership is vanquished (tech/energy/metals/agriculture/solar) and even Uncle Ben might not be able to stop some sort of 'halfway meaningful short term' correction. When was the last time we had a sustained 3% drop over 2-3 days anyhow? But at this point in this state of suspended disbelief and all news is good news, you have to still be on the bull side until we get more proof.

The rally cry today will be "it's healthy to see sector rotation into the weaker areas such as financials, home builders, retail blah blah" Yeh, but... those sectors have severe headwinds in the next 3-4 quarters (if not longer) so are we really going to see sustained leadership once we get past the short covering bounces? Too soon too tell, but this could be an inflection point. Or we could go right back to the leaders again in a day or two. Or it could be random musings of a no name blogger. ;)

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