DID YESTERDAY MARK THE TOP?
This never occurred to me during yesterday’s sell-off, but what we experienced was in fact very similar to the inverse of what you see at a major market bottom. Very often at market bottoms the market will reverse course on bad news as the sellers climax and the buyers are all that’s left. The news continues to come out fairly negative, but there are no sellers left. The buyers stampede and a new bottom is formed. What we saw yesterday was potentially the opposite. David Rosenberg elaborates:
For the first time in this 60% bull run (I still call it a bear market rally), we saw the market sell off on what could only have been described as unabashed good news from the overall tone of the FOMC press statement.
The high for the day on the Dow Jones Industrial was 9,916 at around 2:30 pm — about fifteen minutes after the FOMC release. At the end of the day, the Dow closed at 9,748. That’s a swing of 168 points.
At the March lows, we had a huge reversal too, but in the other direction. I’m obviously not a technical analyst, but we should think about what this could possibly mean (if it means anything at all). It could imply that the market has run out of buying power. Or it could mean that the market has already overpaid for the ‘sweet spot’. It could also mean that the psychology of “buying the dips” is over, and a “locking in the gains” mentality may be setting in.
All I know is that this is the first time in this six-month rally that we have seen a reversal to the downside on a positive news day.
Excellent thoughts. Thanks David.
Source: Gluskin Sheff
I fail to see yesterday being positive. Maybe I am just over analyzing. But the Fed has basically been saying the recession is coming to an end and it is just all down hill from here…So I think the markets were expecting some sort of action from the Fed to confirm this. But they basically refused to confirm that everything is downhill from here. I mean…if you are driving up a hill, you have to push the accelerator very hard. Well once you are over it and are preparing to come down the hill, you have to begin pressing the brakes early. Well the Fed still has its feet on the accelerator even though they are saying we are past climbing up the hill. I think that is why you saw the fear trade back on yesterday (dollar rally from lows) because investors are beginning to question the authenticity of official statements. It’s about fu*king time. Excuse the language…
James,
The Fed has been wrong at every twist and turn over the last 5 years. Take everything they say with a grain of salt….
TPC
yes, and I think you are beginning to see votes of no confidence in what the FED is saying.
Rosenberg is useless to invest off of….
Bill,
You clearly don’t know what you’re talking about. Sounds like a comment from someone who was long the market all the way down to march and then shorted the market all the way to today.
If I had a nickel for every time someone on these garage-blogs predicted the end was near I wouldn’t have to work ever again.
Ryan, Rosenberg is great at seeing through the smoke mirrors, but that doesn’t mean he is a good trader or you will be if you listen to him. A good trader can see through the smoke mirrors but still go against what he knows and feels in order to run with the herd….
Jason,
Let me guess – EMH believer? Buy and holder? And this “garbage” blog is about as balanced as any you’ll find on the net so welcome to the site for the first time since it’s obvious that you aren’t a regular reader.
If you prefer a wildly bullish and unbalanced news source you can get back to watching CNBC….
You have to be familiar with Rosenberg. I have been a reader of his for a decade and he is not a trader by any means. He grasps onto long secular trends and rides them. To his credit, he is generally correct, but you can’t trade off his long-term secular advice.
I happen to generally respect Rosenberg’s comments, but he seems to have forgotten the ISM data on September first whose good news sparked a hefty decline in the market that continued for all of two sessions.
I also agree with James. The “good news” yesterday was a relative repeat of what Bernanke said last week. Only the people that forgot that were the ones buying after the news.
I also read, and here I’m not quite sure, the FOMC statement as negative. Extending the MBS and agency debt purchases is a sign this isn’t over yet. Yeah, we all know that, but the market doesn’t want to hear it.
Don’t bother to watch today’s session for market sentiment. Wait for the close tomorrow… and I’m not saying flat out that it will go up… I’m just saying keep an eye on it.
BR is hedging…
http://www.ritholtz.com/blog/2009/09/hedging/
Regardless of whether the Fed is right or wrong (assuming they can be) remember their *mandate* is currency stability AND *US* job stability. The unfortunate answer is they can’t have both (80’s they chose monetary; 90’s onward they chose the latter … because they *politically* could. It’s pretty clear they can’t win on either account and now it is down to trying to minimize the damage on both. The likeliest scenario is 70’s all over again except replace (oil embargo + Vietnam war with private deleveraging + demographic liabilities). Therefore, market participants will trade appropriately … I don’t think they believed the Fed or gov anymore in 1970 then they do now or vice-versa … so not much has changed. I would keep an eye on politics as in the 70s; be very wary about what unions, state budgets etc. are doing as well.
Any downside could be fairly shallow. My earnings analysis is setting up for another quarter of blow-outs. I’ll have a formal report out early next week….You won’t want to be short into the upcoming earnings season.
I think there’s a very decent chance it was the top, but I am still leery of playing the market from the short side for longer term positions because of all the govt intervention and rules changes. Instead, for investors I think a safer plan is cash, gold, and gold mining stocks. It is pretty clear yet again from the Fed’s statement yesterday that they are going to do whatever is necessary to try to prevent deflation, and this means a lot more money printing. I recently read some good articles at http://www.goldalert.com about the Fed’s policies and potential effects on the dollar and the gold price. There are many serious consequences for the future of the global economy based on the often reckless and unprecedented actions of the Fed.
I still like playing the risk aversion trade. Not necessarily getting short equities, but playing the long dollar trade, long bonds, short canadian $, long VIX, etc etc. There are ways to get short without taking on the risk. My portfolio has underperformed for well over a month, but all things considered is doing quite well. If we dip in the coming weeks I’ll be set-up nicely heading into year-end and the next earnings season.
thus far it’s been buying/covering on the dip on short term oversold conditions since the market bottomed in March 9th. with the RIMM earnings just released no doubt they’ll be some more selling tomorrow but we’re getting close to short term oversold readings soon. until proven otherwise, let the prevailing trend guide where the market is going for now.
Look like 3 times now we move sideways, drop for about 3 days then go back up…for the last time too I remember market dropped on good news then go to 1070…Unless we break 1040, this trend isn’t over for now. As for the market, they do what they do. Sometimes they go up with Bernanke’s speech. Other times, they go down regardless of his positive message all along.
Henry is right… it went like this (my September 1st comment above): S&P hit closing high on August 27th And there was a 4 day sell off. From the low on September 2nd the market rose +7.7% to close at 1,071.66 points at new annual highs (in closing prices) on September 22nd…. That’s right… two days ago.
I’m not a day trader, but long-term… I don’t care what the market does interim, but you still have to watch. The “buy dips” mentality has to wear off. You heard it here first… I’ll “relax” when financials fall and the market moves up.
Remember the tech bubble? The sector that leads the market into the abyss rarely leads it out… forget about banks… or really do your research ,oP
But if we’re looking for an intermediate term top around now then there are negative divergences that could confirm a potential move down (+10% correction?) The crude oil, Baltic Dry index, and China stock market haven’t confirmed the recent move up. something to take note to see whether the market can rally again off short term oversold. had a hunch we could get a +10% correction in the 4th qtr. maybe we’re getting an early correction or I’m wrong.
a drop of 170 points out of almost 10,000 is nothing. what bear market? thank God we got away from the doom and gloom constantly coming from Fox News for months. I bought all sorts of stuff and have done OK. Sorry for many that they listened to the bears and sold off when the market was down and didn’t have the stomach to come back in. Just don’t listen to the idiots on TV who really don’t know shit. Lou Dobbs isn’t bad. But many are just air heads out of universities that learn to sound like ‘journalists’. Let Oprah make your picks for you laughs. I’m doing fine.
TPC – what’s your thoughts on asset allocation within the risk aversion trade? Bond mix (I assume 3-5 yr TBond?)? Cheers.
MARKET QUOTES
MARKET NEWS
THIS WEEKS MOST POPULAR STORIES
© 2009 pragcap.com · Login.
Home · Advertise · Contact us · Disclaimer ·