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Back in early March, I called the possibility of a short term snap-back bear market rally. The rally led mostly by Financials lasted about 6 weeks (longer than I expected). I think it is time for some profit taking. I expect the market to start the correction process sometime this week. While I don’t think the major indices will retest the March lows again (agree with Doug Kass on this), I think the market will zig-zag from here (780-830 on S&P??) until the 2nd quarter earnings (mid summer) and then followed by another major rally in mid to late summer.
I like this chart posted by Michael Ashbaugh on Marketwatch.
Consumer credit card is the next shoe to fall. Commercial real estate is not too far off. All the amazing bank earnings (fake+convenience) that we saw in the last week or so are already baked into the market. I say it is fake because it is our TARP money that were recycled into earnings.
“The credit card company also said it expects managed charge-off dollars in 2009 will be higher than the $8.6 billion it previously projected. Its shares dropped $1.74, or 12 percent, to $13.31 in after-hours trading. They had risen 12.5 percent, or $1.67, to close Tuesday at $15.05 before the earnings report.”
As usual major media news outlets put a positive spin on a the negative news this morning. I think this short term bear market rally will be coming to close soon. Then we are off to testing new lows.
With all the recent Fed actions, is there any one who here believes that inflation will not go out of hand in the near future? While I don’t think that we will see double digit interest rates, I do expect rates to trend higher (8-9%) within a few years.
I recently came across this blog post that shows a historical chart of the Fed Funds Effective Rate between 1954 and 2008. Paul Volcker, the Fed President at that time had to raise interest rate all the way to 20% to fight off inflation. But that drove the economy into a deep recession.
I recommend reading The Bear Facts for a look back at the early 80’s.
As an investor you would naturally ask how do we tackle inflation? What is the best way to invest in the inflationary environment?
This article posted on Global Economic Trend blog gives some ideas
# In hyperinflation the last place one wants to be is in cash.
# Commodities in general are a standout.
# Gold is a standout.
# Precious metals are a standout.
# Property is a winner.
# Equities are a winner.
# Treasuries are distinct losers if not an outright short.
# Foreign currencies
# Energy
I recommend investors to consider the following stock investments
1) Vanguard Precious Metals and Mining (VGPMX)
It’s down 66% from peak. I think this is a great safe way to play precious metals. The fund recently added Newmont Mining (NYSE:NEM).
2) Double Gold Long (DGP) DGP has been performing well recently since Fed’s announcement of backing Mortgage treasury bonds.
3) U.S Oil Fund (USO)
As Oil continues to perform well, USO is a great fund to be in. Fed’s recent action not only helped Gold, but also Oil and other commodities.
Updated, March 12: Dow closed 7170, S&P blasting through 750!
The rally today that we saw today was the best rally we have seen in a while. A tradeable rally like today should drive the major indices to test the 50 dma. The chart technician DeGraaf on on the CNBC Fast Money show implies that S&P could make a 35% rally to test 200 dma. Whether it will get there is anyone’s guess. But I think we might see a nice short term rally in the Global markets.
Interesting take on charts by Carter Worth on the Fast Money show.
Worth tell us that patterns in the stock market tend to repeat themselves. He mentions that we spent about 6 months at the top and we spent about 7 months at the 2002-03 lows. There is a presumption that we will spend about the same amount of time at this junction. And we’ve already been here for the better part of 4 months.
http://www.cnbc.com/id/29331307
I was tempted to pull the S&P 500 and Berkshire Hathaway 3-year chart to compare where we are in the bottoming cycle. Both chart shows that we are at a critical juncture in the market cycle.
It’s been a while since I posted anything in my blog.
Here is a question for you. Which one gets bailed-out and/or nationalized by govt this weekend? Bank of America or Citibank?
Except for Chase, Goldman Sachs and Wells Fargo, I have no confidence in the survival of most of the U.S financial institutions.
I made a short-term buy recommendation back in late Nov when Dow was at this level. In early January markets peaked. After Obama’s inaguration, market started tanking. This administration is making the same mistakes what the previous administration did. Handouts to the people who are foreclosing the properties because they couldn’t afford to buy the properties in the first place. Come no..now! You cannot artifically set the floor on housing prices. What goes up needs to come down. Housing prices are totally out of whack with income. We have at least 20% more downside at the national level. NYC market has just started cracking. Toll brothers condos in Brooklyn and Queens are on fire sale (if anyone is interested in living in the burroughs). Markets have no confidence in Geithner (wrong choice for Treasury Secy). We are most probably going to see new multi-year lows on all major indices. If Dow breaks 7440 tomorrow and S&P breaks 740, short the heck out of Financials and Tech. Unemployment is more like 10%. Our govt data is reporting 6% which is not correct. I think most retailers will not exist after this year (Nordstrom, JC Penny, Sears, Tiffany, Sakhs all in trouble). GM and Chrysler will go bankrupt in a few months and might be forced to merge their operations.
“Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.
In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for [$27 billion of] preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program”
Citigroup pre-market futures indicate a sharp recovery from Friday’s lows. The stock is up 60% to $6. Dow and S&P futures are up as well.
Blue chips, including Citigroup (NYSE:C - News; $6.40), Alcoa (NYSE:AA - News; $8.16), Xerox (NYSE:XRX - News; $5.58), Motorola (NYSE:MOT - News; $3.44), Starbucks (NasdaqGS:SBUX - News; $7.97) and Yahoo (NasdaqGS:YHOO - News; $9.14), not to mention beleaguered automakers Ford Motor (NYSE:F - News; $1.26) and General Motors (NYSE:GM - News; $2.79).
According to S&P data, 101 is almost double the 59 companies with share prices below $10 in October 2001 when the dotcom meltdown was in full swing and almost triple the 35 sub-$10 stocks in October 1987
We predicted this last month. We are seeing a W in the Candle charts. If this retest is successful today, we will aim higher. Otherwise lookout below.
Here is an excerpt from BigPicture blog.
Markets have come increasingly close to their October 10th lows. Contrary to what you may have read or heard on TV, this is precisely as it should be. Why? Major lows get retested. That is a basic tenet of market behavior, and crowd psychology. (This has been verified by a variety of studies by different technicians, economists and traders).
There are a variety of different ways to define the terms, yielding some variations, but the basic outline remains the same: All major sell offs hit a point where markets become so deeply oversold, that a rally ensues. Depending upon how deep the prior sell off is, this rally typically lasts anywhere from 3 to 6 weeks. Our work at FusionIQ shows that these snap-backs typically go for about 4 weeks and average ~24%.
The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.
![Freakonomics[Revised and Expanded]](/images/21xRHBWYYML.jpg "Freakonomics[Revised and Expanded]")
