After such a large move up in a short period of time - a healthy action would be a retrace to S&P 870 or 840, some consolidation sideways, and then a new leg up for a final Santa Claus rally.
So we have our first pullback to S&P 870. So far the action still has been "healthy" but I find it hard to trust anything in this market. If we are indeed in a new "mini bull" (within a bear) phase we want to see this pullback bought hand over fist as Santa Claus gets his game on and we embark on the "rally into year end" nonsense. If we break below S&P 840 all you will find in your stockings are empty cartons of instant Kool Aid. It's actually quite an important time here for the markets, as the only way people like me will trust any move is if the lemmings buy all these dips - then we'll join in and sing Ho Ho Ho as well. I'm watching the reaction to these levels very closely. Still in high cash and not trusting of anything in this market, but as we noted yesterday we began rehedging with Ultrashort Real Estate (SRS) (now up 30% on the day) and Ultrashort Financials (SKF) (up 16%). Volatility remains insane. We don't have to "predict" just "react" in this market. We have a 50/50 chance to go either way in my opinion - depends if we go down the hope route or reality route the next few weeks. I still think hedge funds "want" to mark up this market late in the year to make their performance look better than it is.
If this is a "buy on pullback" time instead of "ah just kidding about that suckers rally" moment, we'll look to buy some of the things working of late like infrastructure, China, and the like. I'd rather buy on a strong push north of S&P 900 however - this would show me buyers are real and it's more than quant hedge funds playing a "theme" for the day/week. Honestly I'd like to see us get over that ugly red line to believe in any of this fairy tale.Open question: how do we rally on late cycle (infra, commodities) when early cycle (housing, banks, retail) has not yet rallied? Now we are going to reverse the business cycle? Only in the casino....
Long UltraShort Financials, UltraShort Real Estate in fund; long UltraShort Real Estate in personal account
9 comments:
If the market was predictable, then people would take action according to these predictions. This will then change the market behavior to be unpredictable since the predictability of the market relied on the previous mindset of the people (before it become predictable). Make sense? I think so.
Volume has been dropping during this churning period the last few sessions...looks like people are waiting for something. Interestingly the auto bailout news may coincide with tomorrows retail numbers to offset what probably is a bad number?
Sia, thats why the 3 PM Move is nonsense to me. If everyone plays it, why is it working anymore? Nothing lasts for long - once something is identified its exploited quickly - the market is efficient like that. Which is why I am aghast the 3 PM game is still working.
Crappy, first we need to get you a new name. Like "Average". That's an upgrade. It's sort of a "you first" - no one is buying on fundmanetals - its sort of the Ponzi scheme - look if you buy, I'll buy, which will attract Bob to buy. When Bob buys, Joe will buy and next thing you know we can go up. Why ? No good reason - other than we are all buying.
That works fine and dandy unless you are the last sucker in that chain. The market is so technically driven - you cannot buy almost anything on "fundamentals" and justify it, so we all await new suckers to keep buying. I'm willing to be a "sucker" if we cross over the 50 day moving average on the S&P 500 myself. But as I wrote two days ago the "easy money" of this move has been made and now we have to grind higher and draw in more suckers afraid of missing the "year end Santa rally". I'm happy to sit higher in cash and let bulls and bears fight it out. You don't need to be heavily invested at every moment. This is a 50/50 moment - the odds are not with anyone so we'll monitor it and once the market decides on a direction we'll jump on that direction. It's either hope or reality. I'm ok with either. But need to see a clear direction first.
Commodities are boucing due to weakness in dollar I guess, as far as the casino is insterested in maintaining that correlation though!! ;)... damn this market man, I'm begining to hate it!!
Although upside momentum is waning, I am not so sure I would give up on this rally yet. The NAS and R2K are still in bear market rallies; however, the S&P500and Dow are in better position to form a bottom. All that I see happening today is a gap has been filled after a reasonably strong up move. It will be interesting to see where they are closed on Friday.
Still neutral here. As my 2nd sentence said, thus far the action still is "healthy"
We might climb the wall of worry all the way until Inaguaration Day. Heck, I am almost counting on hedge funds to front run this market until Dec 31st.
Looks like we're not even going to have to worry about 870 now. 820 here we come!
Yes, GM/F and Chrysler downfall will overrun the last Christmas rally hopes.
It's time to pack and go cash in my view. See you in 2009 :)
840 is our early trading spot this morning. Will be interesting to see if we can hold this level or dump lower.
I'm watching NYSE and NASDAQ volume carefully on these down days. So far we haven't seen very much in the way of distribution (in the past 2 weeks) but today could be another animal alltogether.
Zach
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