Monday, December 8, 2008

2008 - A Busy Year

I week ago I wrote about the areas of weakness I saw in the markets.

These areas have not done well during this bounce. Oil Service companies (OIH), Natural Gas (UNG) and Agriculture (DBA) made new lows, while Energy Conglomerates (XLE), Silver (SLV), Utilities (XLU) and the Euro (FXE) are weak.

In the mean time, the hardest hit areas have been reverting back into declining moving averages. This is a classic Bear Market bounce. But in classic 2008 fashion, multi-percentage moves have been compressed into hours and minutes, instead of weeks.

Here is a chart of the S&P 500 in 2008. I listed all of the actions of the Government. You can see how they were geared towards holding up asset prices or at the very least slowing their decent. The name of the game in 2008 was “Deleveraging” by financial institutions. So each rally allowed the big banks to sell more stuff at better prices than they would have been able to, had the markets not rallied.

This has proven to be an expensive exercise. Take a look at this chart from The San Francisco Chronicle. Scroll to the right and see how the programs have accelerated the last few months –

So in my eyes, this rally is just another Government-induced bounce into resistance. In my opinion, if you are a buyer, then all you are doing is letting some hedge fund or banks sell what they need to unload at a better price than they should be getting. There will be a time to buy, but I don’t think it is now.