One day (in a galaxy far far away) when the correction happens, all the things now being discounted as "priced in" will be trotted out as "reasons" for the selloff. But as always, "perception is reality" and perception now is all systems are go for this 2nd half recovery. Until evidence (in overwhelming force) to the contrary appears, we can continue merrily along. Even Cramer is out today saying oil is not a tax on the economy in the new era. So this is Wall Street thinking at it's best; when you've been saying something for a long time (he has been saying it is
a tax), when the market price action goes opposite to your view, than you rationalize it (now oil is not a tax except for consumers). Got it. So if $130 oil is good for us, I suppose $140 will be even better. Do I hear $150? Maybe that would signify Dow 20,000.While it would be ironic to see the market correct just after a clearing of a long term resistance level (sucking in all the technical traders), we cannot count on it. Therefore as mentioned in this week's summary if we appear to be closing (late today) above this 200 day moving average, I'll start paring back short exposure. As I said, I am not really looking for new buys, unless it is something that has not already run to a great degree, but instead of having 23% of the portfolio working against me, I'll need to get that number lower so our 60% long exposure is not completely wasted away by the Ultrashorts.
While I don't believe in this rally - much like we did in September and October 2007, you have to respect the price action and standing in front of a herd of rampaging bulls, only loses you money. Being intellectually correct does not make one money - ask all those people who were correct about the internet bubble but whose portfolios were decimated by betting against it. Only 8% higher to go in the S&P to reach all time highs ;)
For example of the current level of mania, Pacific Ethanol (PEIX) reported a "better than expected" 6 cent loss versus a 5 cent loss last year. Since that demolished the analysts expectations of a 9 cent loss, this is worth a +46% gain today. I am seeing a lot of small cap fare doing the same nonsense. This would indicate the latter stages of a rally, but I've been saying that for a week now. :)
Another sign of trouble - many former leader stocks are not participating; this is mostly a 'worst of breed' small cap rally. But with that said....
Conclusion: Everything is priced in. Buy Stocks.
3 comments:
Hi TraderMark:
A lot of folks are mentioning the 200 day moving average as though it is something special. The reality is that it is not, and in fact, it is no better a signal than just buying and holding an index. Yes, folks may focus on this "key" technical level, but like most things on Wall Street it is only dogma and it won't make you any money.
I respectfully disagree.
First nothing works 100% of the time; in fact if we find things that work 75% of the time we are thrilled. So TA is not fool proof. But if hordes of computers and traders (humans) are set to ABC sign, then it (in my opinion) self reinforces. There is a reason stocks fall back from resistance or bounce off support. Not just random acts.
I explain it like this to people who don't believe... if someone documented a trend that in Miami, when it was over 90 degrees, sweater sales jumped 40% you would say it is ludicrous. So would I. But if that was the trend, every day it was 90 degrees or higher and I were a sweater salesman, I'd be stocking up on sweaters. Because thats when the herd buys sweaters.
So this is how much of the herd now trades. So I simply believe it is self reinforcing. If it were the 150 day or 400 day or 37 day moving average that everyone clung to, I'd observe those as well. But 50 and 200 day seem to be the major trendlines (along with 20 day for stocks in strong uptrend). But again, does it fail quite a bit? Sure. Everything does in the market. But I've just seen too many things respond near perfect to resistance/support over the past 10+ years to dismiss it. But I understand why people do so, and think its voodoo :) Because on the surface it makes little sense.
It is all a matter of context. As a signal - that is buying above the 40 wk. MA and selling below - it is a poor strategy. The data does not support that it is important. But it probably becomes important in the context. For example, this is still a bear market and inflation is high and sentiment is neutral to bullish (which is a bear signal); so when you add all this up, it seems like the 200 day MA would bring out the sellers. Once again, as a pure signal, it does not stand up.
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