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Press Release Unwind Trade Over? - August 13, 2008
The unwind trade (sell natural resources buy financials) appears to be over. While this is not necessarily bullish for the market with its heavy financial weighting, it should provide much needed support for properly correlated portfolios. With valuations reset at much lower levels, it is my opinion that the prosperous reflation trades of the last six years (energy, gold, agriculture, metals and emerging markets) will once again outperform. I’ve rolled over our protective puts through October.
Yesterday's Market - July 10, 2008
Yesterday's rout made it pretty clear that the rally on Tuesday was nothing more than a one day respite. Fortunately, the insurance that was recently added did much to limit the collateral damage. I'm afraid that what this market really needs is a one or two day meltdown on high downside volume followed by a melt up on even higher upside volume. This is what happened in
March, and it led to a healthy two month rally. In the meantime, I think we are fairly well cushioned from any serious downside while the market washes itself out.
Third Test of the January Bottom - June 25, 2008 The market has once again retested the lows established in January and March. Is this the final test? Only time will tell, but the enclosed chart ( courtesy of Dorsey Wright & Assoc. ) could well supply some clues. If you look at the column of O's in January, only sixteen percent of the stocks on the NYSE were in bullish ( going up ) patterns; twenty four percent in March, and currently forty percent are still in bullish patterns. I interpret this to mean that the weakstocks are getting weaker, but more and more stocks are finding bases, and may well be positioning themselves for the next up leg to the market.
EM consolidation coming to a close? - April 15, 2008
We are now in the fifth month of the downturn and consolidation in emerging markets. A similar pattern can be seen in the enclosed chart (source, bca research) for a five month period during 2004 and 2006. With the Fed’s efforts in pumping liquidity into the system starting to payoff, it is my belief that the consolidation in emerging markets is coming to a close and that a new wave of relative and absolute over performance is likely to begin. Will this be the start of the next bubble? Only time will tell, but along with commodities, I wouldn’t bet against it.
A Very Oversold Market - January 23, 2008
Here are the charts that would argue that we are in the final phase of at least a temporary capitulation in the market. The first illustrates that corporate insiders are substantially buying more stock than those selling. The lower half of the same chart shows just how negative sentiment ( a contrarian indicator ) has become, and the bottom chart provides a picture of how oversold the market is in terms of bullish percent. Only sixteen percent of stocks on the NYSE are in bullish patterns. As you can see from prior years, this percentage rarely gets below thirty percent and didn’t even reach these extraordinary levels back in the bear market of 2000-20002. Market looks to be down sharply this morning, and then we’ll look for an afternoon rebound.
Final Capitulation - January 21, 2008
Stocks in Asia fell rather dramatically last night, and currently Europe and Latin America are not faring much better. Futures on the S&P 500 are now down almost four percent. While we do have some protection from puts and in some cases the ultra short ETF Index, tomorrow is shaping up to be a bad day.
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