Like I mentioned earlier, it is amazing to me how all it takes is a few days of rallying to get everybody switched from being afraid of going bankrupt to being afraid of missing the “New Bull Market”.
This Bear Market has laid waste to people’s portfolios. Many of the “top mutual fund managers of all times” are down 40 - 50% for the year. I don’t know about you, but I can’t afford hits like that in my account. They got caught. They either bought too many financials because they were “values” or they bought too many commodity and energy stocks because they were chasing returns.
The average investor is now chasing stocks on this bounce because they have no discipline, no skills for determining what to buy and when to buy, they are down a heck of a lot of money and they are grasping at straws in an effort to make back some of their massive losses.
I wanted to take a look at interest rate cuts and tax cuts versus the stock market over the last two Bear Markets. Rate cuts are Black Arrows. Tax cuts are Green Arrows. It seems to me that the clusters of Interest Rate cuts precede at least one last leg down. I assume that if things were so great, then the Fed would not have to cut rates twice in October.
What amazes me about the chart is that there was a rate cut AND a tax cut AFTER the market had bottomed. That means you bottom on horrible news and people are still Bullish these days. Yikes!
What concerns me is that the moving averages (Red and Blue Lines) need to work their way a lot lower before the Bear is over.
When markets crash, they need time to repair the damage. They don’t just bounce and not look back. The markets were cut in half in a year. Yet everybody is still looking to buy and not miss out on the New Bull Market. Things don’t work that way. I expect at a minimum a retest or two of the October low. I would not be surprised to see us undercut the lows to scare the heck out of the remaining Bulls. Can you imagine how sick you would feel if you bought today and the markets put in NEW Bear Market Lows?
I have a couple questions for the Bulls -
If things are so good, then why did we have to bail out South Korea, Brazil, Singapore, Mexico, Georgia, Belorus and Ukraine last week?
Why did we cut rates .50% last week?
Why did Australia cut rates .75% last night?
Why will the ECB cut rates on Thursday?
Why did China cut rates twice in a month?
Why did Argentina take over the assets in the pension plans householded in their country to keep their country solvent?
Why are some floating the idea of taking over 401k plans to finance the next “New Deal”?
Why is a new “New Deal” needed or even being discussed?
Why is there talk of or need for another “Stimulus Package”?
The government tried to make you feel good going into the election.
Remember, asset appreciation has been a primary economic policy. Because it’s easier to prop up asset prices to drive consumption than it is to create jobs and use savings to drive consumptions. Americans are sick of this stuff and that’s why Obama won BIG tonight.
There are a lot of people out there who have no clue what they are doing. They never studied and they never came up with rules and disciplines for how to manage money. They don’t know when to get defensive and they don't know when to invest.
What we are going through right now concerns me. All you are seeing is classic a Bear Market, where people are terrified at the lows and then get sucked in on these vicious rallies. Emotions are driving decision making. That’s never a good think. My job is to get good information out to people so that they can make good decisions. I have had to work 18 hour days lately to overcome the insanity that passes as expertise on the television.
If you are an individual investor, then you are in an uphill battle. You need an unbiased advocate on your side. Otherwise, you will get caught up in the emotions of the day and do the wrong thing at the wrong time.
If things are so good, then where is the volume (why aren’t the big investors buying)?
The volume on this bounce has been anemic, just as it was on each bounce in the 2000-2003 Bear Market. The bounce is fast approaching huge resistance.
The Dow Jones Industrial Average
I went through all 30 charts today and they fall into 3 groups –
Oh My Goodness – Alcoa, Caterpillar, DuPont, GE, IBM, J&J, McDonalds, Merck, Microsoft and Wal-Mart
Rallying into Resistance – American Express, AT&T, Bank of America, Boeing, Citigroup, Chevron, Disney, Exxon, Hewlett Packard, Intel, Kraft, 3M, Pfizer, Proctor & Gamble, United Technologies, Verizon
Eh - JP Morgan, Kraft
Oh My Goodness can be broken down into two categories –
Implosion
Hanging on for Dear Life
Rallying into Resistance
There are ZERO stocks in that Dow that look buyable. But there are many setting up as great looking shorts!
I am looking for leadership and right now I have 4 stocks that I see working. One failed its breakout hard today on decent volume. Other leadership will need to show up.
My assumption is that as the markets go through the process of testing and retesting the lows, new leadership will be able to form and eventually break out of consolidations on heavy volume. That is when I will be interested in buying again!
Until then, I am just looking to short rallies on anticipation of the highly-likely retest of recent lows.
No comments:
Post a Comment