DEADShort term sentimentsDEAD

[vin]

New here – mostly swing trading. I’ve been searching for a serious site and believe I have found it here. Mr. To’s commentaries are excellent. Let’s cut to it - I for one am spooked short term (1-3 weeks). Here are my reasons:
First, the current rally just doesn’t seem to have teeth. The move up on June 29 seemed exaggerated. It was just a big ‘Hurrah, the Fed did what we expected.’ Many read a future pause into Bernanke’s statement but who knows? It’s almost as if the market ‘willed’ a rally.
Second, after this delayed follow through day the major indexes responded with a pullback on increased volume (modest in percentage loss).
Third, two days prior (June 27th) all three indices had what I call a ‘heave day.’ They climbed over the previous day’s high only to close lower than the previous day’s low – all on increased volume.
Fourth, there was no doubt some end of the quarter window dressing and short covering.
What has happened since? Some call it consolidation; I call it distribution and selling into bounces. The accumulation volume has been anemic. Although the holiday week clouds things the leading events remain.
Lastly, the most important thing is the gut. Something makes me feel very uneasy (see below). Maybe it was the synthesis of what I mentioned above; maybe I am worried about locking in gains on this recent move up. Nevertheless, I liquidated everything except LEN as I don’t think homebuilders can get beat up much more (gee, wonder where I got that idea?).
North Korea lobbing missiles into the sea doesn’t help. I think there will be one more shakeout before we test old highs again. I don’t know if we’ll sink to (or below) the mid-June lows, but it could be painful. Predictions are pretty much worthless until events transpire. I’m only building an arguable case. The market doesn’t care or need reasons to steamroll every naysayer out there. Let the tape decide.

Side note: I was reading my Bible before the market opened and came across these verses:

“With her enticing speech she caused him to yield, with her flattering lips she seduced him. Immediately he went after her, as an ox goes to the slaughter, or as a fool to the correction of the stocks…” Proverbs 7:21-22

I don’t claim to have divine intervention on my side, and starting my day with this verse might have been what spooked me. Take it for what it’s worth, but the wording in this verse is uncanny in its application to bulls running up a blind (r)alley. The Bible remains the best book on investing ever written (not to mention the invaluable spiritual content). If you don’t have one, get one.

[HenryTo]

Joe,

I agree with you - this doesn't feel like the last recession/bear market we had during 2000 to 2002. Most folks during that sequence remained optimistic up until the very end, including the brokerage houses and investment banks.

Maybe it's because these folks are "closer to the action" this time - as the current crisis emerged from the financial sector as opposed to the tech sector in the last bull market. But the financial types have always overstated their importance/impact on the economy/S&P 500 earnings over the long-run, including myself.

If I didn't feel such a high amount of bearishness all around, I would be more worried.

Best,

Henry

[joe0528]

Hi Henry

[nodoodahs]

Positive territory late in the day, after a successful retest of yesterday's lows.

The worst may very well be over. Time will tell.


_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

This has a two-week lag - a 10% differential is low enough given that this survey was taken two weeks ago. We should see significantly lower readings in this survey next week and the week after.

[rffrydr]

INVESTORS intell......41% bulls 31% bears. Not good enough.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Also, it looks like those who did not get out yesterday morning, are trying to get out this morning. August was a V-bottom. I would classify the November bottom as having one mild after-shock day (Novembe 26th) - which in retrospect, did not indicate capitulation.

Look for more after-shocks going forward as we climb a wall of worry.

[nodoodahs]

Highest-volume day on the SPX and INDU.
Ranked #4 on the NYSE composite, the other 3 were last August.
7th-highest on the COMPQ, others came in August and one in November.
4th-highest on the NDX, others Aug. and Nov.

Elementary, my dear Watson.

Every buyer has a seller. There must have been lots of sellers to generate that volume.

That was all done BELOW Friday's price. The sellers were desperate.

If it's not capitulation, it looks a lot like it to me.
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

In terms of the NASDAQ, the high-low differential ratio (52-week highs minus 52-week lows divided by total issues trading on the NASDAQ Composite) hit a record low based on the 30 years worth of data I have.

The previous record low was -25.08% on September 28, 1981. Over the next month, the NASDAQ rallied nearly 11%. Even at the close on Black Monday, October 19, 1987, this reading "only" closed at a low of -20.34%. I still need to double-check my data but it looks like this ratio closed at a low of less than -30% today. If so, any dip tomorrow in the NASDAQ due to the Apple earnings report is a strong buy.

Henry

[diesel]

[HenryTo]

Hi Joe,

Just like the aftermath of a great earthquake, I think we will see some "after-shocks" over the next few weeks if this is a true bottom. e.g. the Apple reaction in the after-hours market and the 16-point decline in the futures right now. Watch for overnight and morning action to be bearish - and then gradual recoveries during the afternoon. Also watch the mainstream media - they should continue to be bearish for the next few weeks.

In the meantime, there is no doubt that the economy will continue to deteriorate - but whether that is already discounted in the share prices of the S&P 500 yet, we just don't know. Watch for a spike in foreclosures given the recent subprime rate resets - as well as a major spike in subprime resets later in March.

Before this ends, I believe both the ECB and the Bank of England will need to cut - while the GSE limits will be raised. There are also a lot of private equity/vulture funds out there that are waiting on the sidelines to snap up depressed real estate assets. They are willing to do it even if they can't rent them out, given the right price. This will be supportive for both housing prices and the economy, and is an especially important factor this time around (similar to the emergence of the sovereign wealth funds) - as they were, essentially, not around during the last real estate downturn in 1990.

A significant chunk of this liquidity that is targeted towards the housing market will flow into stocks, especially US stocks. Whether this wave of liquidity will provide a floor at DJIA 11,700 no one knows - but I am willing to bet that it will, at least for now.

Best of luck,

Henry

[joe0528]

Hi Henry

One thing that worries me about this "bottom" is that I didn't see real selling in this capitulation low. The market was opened low due to the holiday and the rate cut was before the market open, so the market had not really gone through a real capitulation (selling) yet. How do you think about this?

[HenryTo]

I think the "bottom" is now a done deal.

I am now moving on and will try to get a sense of whether this "bounce" will be sustainable going forward, and for how long. The one thing that is worrying me right now, especially since it's not on many folks' radar screens, is the potential of higher taxes on dividends and capital gains once the new President comes on board in 2009.

Obviously, I will continue to monitor my other leading economic indicators, but for now, the stock market (especially consumer discretionary and financials) has more than discounted the possibility of a recession sometime this year.

[rffrydr]

The advantage of the "recoupling" story is that it begins, and ends, right here with us. Funny thing about Holidays.

BAC quick to reverse; rotation into financials will continue.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

The current decline has no "teeth" at all. After staring down the abyss this morning with the ARMS Index at nearly 5.0, it has since retreated to below 1.0 - definitely not in crash territory. In fact, such a reading is now pointing towards a huge reversal later this afternoon.

Henry

[HenryTo]

Hi Len,

I prefer not to discuss positions in a public forum. Please check your PM in a few minutes. As far as an update goes, please see the latest email that I just sent 15 minutes ago.

Best,

Henry