Update-
Well the answer right now to the question of "bear market rally" looks like not a chance. This is a sign of how bad this market is. I was stopped out on the extra Potash purchase. It was very small. Nonetheless. This is why I am paper trading right now primarily. Until I prove repeated success in THIS MARKET as opposed to all seen before (and even the one we saw several months ago) I remain very cautious when it comes to trades. I really want to go short but the oversold market makes me nervous in that direction as well. If you haven't please read the last post on why stocks with good earnings have gone down and some stocks with poor earnings have gone up. It's a cascade of hedge fund forced deleveraging and ironically it hits the best companies the most because they are the ones that the Quant funds locked into and leveraged to the hilt. Once the price went down from the 200 level we started getting a cascade effect of margin calls and deleveraging. If someone was selling a Porche for 10,000 but no one had any money that would be one expensive Porche and the price would come down. Same here with stocks like POT. There will still be nice trades once in a while but capital must always be preserved. Great Earnings? Who cares if no one has the money to buy shares?
Up is Down and Down is Sideways. Again, only the charts tell of the whole picture... In this market the best companies can also be the very worst stocks.
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Stocks have fallen a ton from their highs when we were at Dow 14,000, SP 1570, and Naz 2870.
As VFRTXN (V) pointed out on the blog Earth to Wallstreet blood in the streets and fear is often the time to start thinking long not short. The smart money waits like vultures for the moment that fear takes over and then swoops in to take the gains.
V. recommended buying AIG when it reached around $1.25. Hats off to him on this. Really. It is impressive. Not the first time he has made gutsy calls that have been right on either. He is perhaps the ultimate contrarian. This naturally makes him a target of people's ire. He is not always right (unlike me who is perfect ;)... for those who do not know me that would be a joke.) However, his views can be very refreshing and it is always worth it to give credit when credit is due.
When it comes to anything financial I have stayed away because of the real threat of bankruptcy in certain cases. In the case of AIG it has already been bailed out, more or less. It is a very profitable business overall and the stock may still be headed higher. WB was another huge score for anyone who got in recently. Personally, I do not have the time right now to do the DD necessary to investigate financials and see how viable they are. Half way doesn't get it done here so I have stayed away.
However I bring this point up for several reasons. First, this ties in with the idea of the pendulum on a previous post. The large sell-off yesterday and the fear and the publication in the news and the fact that even my college alumni friends were talking to me about the stock market yesterday is a HUGE contrarian indicator. Smart money was waiting for some panic selling and yesterday they got it. Some people made incomprehensible amounts of dough today. For every loser there is a winner. As I said on the last post it is always important to try to ask what the smart money is doing.
The real questions now are: Was this the bottom? Was this the temporary bottom? Was this just a snap-back day rally from Monday sell-off?
We may get some more clarity on this tomorrow. However, I will provide my thoughts at this point and provide some of the reasons for my assertions. Please note that the market always rules... it could easily prove me wrong and in such case I turn on a dime.
My feeling is that there is a high probability that we are close to a temporary bottom in the market. I don't think we have seen the bottom of the market overall but I do think we may be setting up for another bear market rally here. This is the worst market we have seen in years and a credit mess like this will take a long time to resolve itself. This is much worse than the market of the 80s or the 70s or prior in my opinion. However, we have been going down for quite a while now and many short-term indicators are showing that the market is very oversold. Certiain names especially, like APWR for example, are at absolutely ridiculous levels. So are select financial companies and other areas of the market.
This may be a time when it is well worth it to dig through the rubble in order to filter those stocks that have been unfairly cast aside.
I added a little more POT today at just under 130. I have a stop placed just under 127 and I am not willing to commit too much here yet. I am also paper trading certain names just to see how I do. I have done well in the past by identifying great companies trading at reasonable prices and using some other techniques (see Building Your Arsenal). However, in a market where fundamentals only partly matter I have had to learn and use new methods and therefore I am trading the names I know best and paper trading some others. This is a great market to learn new techniques in. Eventually, this training ground will provide very effective tools for the future. And with cash at hand and knowledge to boot we we all hopefully be able to pull some Buffett's out of the hat. (Did I mention that SDTH traded around 6 yesterday and APWR was in the 8s.... and... what happens when the job losses come through and the fear hits Main St as much as it is hitting Wall Street... or will the market already be recovering by then?)
Anyway, the average recession lasts about 10 months according to this link, falls about 25% from peak to trough, has a large wash-out before it moves back up... etc. So by some counts many people may believe that we have hit or are close to a bottom. Maybe we are. However, I think that this is far from an average recession. Read the article from Minyanville below and see what you think. I happen to agree with them right now.
Here is some of the data that suggests we are not out of the woods:
- Home prices are still falling
- LIBOR rates are not coming down despite the bail-out possibility.
- The real credit mess in Europe has and Asia has noteven close to played out yet in my opinion.
- The credit crisis is at least 25 years in the making (and the credit based consumer lifestyle is much longer in the making)
- The US government is also broke. We can't just use the government to kick-start spending projects because they don't have the dough
- Baby boomers are starting to retire and will pull out their IRAs
- Investors want to protect themselves against the potential for the expiration of the Bush Tax Cuts.
- Roubini (Who I turned to this am first actually) said at 11,000 we still had 20% more to go. Check out his RGE monitor (blog at right). He is not for the bail-out
Minyanville article: Here it is.
Here is some excellent reading ala Bloom...
US stocks surge but LIBOR up
The Dollar and the Yen and More
``There's a dollar shortage globally,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Demand for liquidity trumps the fundamentals. Fundamentally, the U.S. is awful, and Europe is awful. Fundamentals are irrelevant today.''
Japan Turns Pessimistic
Iceland's third largest bank bailed out; credit ratings reduced by Moody's
Yahoo news
How the Svens from Svedin dealt with finan meltdown (Hint: Smarter than us).
"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.
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