agree, thats what happened in July, I thought after that 3-4% drop that the markets were ready to rally, ended up buying in only to be stopped out for a loss, it continued to happed until we finally bottomed in July. I think if it does fall 5% the game could be over for any new investors in the market who just started to discover that the market seems to go in only one direction. These markets eventually have to sell off, the longer they go without a sell off the more severe the correction. We will get the correction when its least anticipated.
From a certain traders perspective it is tough to go long here but if you step back and look at the longer term charts and what is driving the market it is a pill that can be swallowed. We may be at the edge of reason at these valuations but they can still be somewhat justified. However, this could easily be the start of the mania phase of this bull. If you are waiting for sensible valuations to go long you could be waiting several more years. I would rather ride this thing as I was doing until I started going short in Dec. and get stopped out and reverse when the end arrives than sit on the sidelines pulling my hair out wondering when I am going to find a decent entry point. Also, with volatility this low you can ride the futures up and put a small % of your profits $cost averaging in to OTM tech LEAPS (puts) each month just in case.
I'm not a bull by any means (I'm flat indicies/ working some spreads) but volume has nothing to do with anything. 'Never sell a quiet market", eh? Some of the most lethal rallies (like this one) are grinding, light volume affairs where shorts are lulled in only to see very little for sale. Some traders are short up the ass and there's nothing to cover against. In fact I'd say lack of volume is a confirmation of trend as often as not....
All i know is I did try to buy the bottom last year and it didnt work, I would say the same thing now that buying here would not work out for me in my opinion. These markets can turn negative as quick as they turned positive. I cannot remember how many times I sold at a loss when trying to go long this market back in May and June. It was unreal. Its when you least expect it that the sell off will occur. International markets could easily sell off 15-30% in a matter of weeks if selling starts to take place.
May be 2-4 years. We have gone from 19.76 to 45 in 4 years on great corporate earnings but with high oil prices and while funding a war. All we would need to get to 70 would be for the liquidity pump to keep working and higher asset prices beget higher asset prices. If the Fed can somehow keep the perception of moderate inflation alive and global GDP continues to rock it seems a plausible enough scenario. The major risks down the road will come from the demographics in the US/Europe, boomers retiring and needing to cash out their home equity/401k's to fund their retirement but that could take 5-10 years to start to play out in a meaningful way.
All true but despite all the problems that bolster the arguement to be wary of taking on equity risk here the market has performed well. I recall that old saw, Don't fight the fed, it feels like that is what I have been doing the last two months and it hasn't felt good. The Fed is getting less hawkish with every comminique so I am going to go with the flow here.
agree, dont fight the fed. Tomorrow is the release of the fed minutes. For some reason after 2pm all I keep seeing is green. They will take anything positive from the minutes and turn it into another rally.
Don't fight the Fed, lol. They've raised rates seventeen times since 2004. Not a clear correlation between monetary policy and equity prices, eh? Central Banker's around the world are fighting increasingly belligerent politicians (liberals i.e. Barney Frank) who view attempts to curb inflation as an assault on wage/job growth. I see no scenario ending this restrictive cycle without a meaningful correction in stocks occurring first. IOW's the Fed ain't easing with the Dow at 13,000. Nor does $650 gold, $58 crude, $4 corn, dollar pork bellies and dollar fat cattle create the impetus for liquidity. Some think the Fed will bail out mortgage lenders. Doubtful. They'll wait for it to become a lending crisis before attempting preemptive bail outs. Ask tech longs in 2000 how accommodative the Fed was to their plight. Not very. I think MVIC has it partly right. IF we rally from here, it could be a parabolic 1987 type thing where we climb 10% in months.
Your right Pabst, though recently they seem to have stopped raising rates and have become more moderate in their language in terms of things they see as risks. I guess what I mean is that while the Fed has raised they keep saying that everything is fine (pretty much sums up Bernanke's' recent performance on the hill), risks are small and they are on top of it (which means that their break in raising rates means is a loud statement in and of itself). Just saw that one of them came out and said that while sub prime was a bit of a disaster better grade mortgages are fine. As a retail trader with retail access to data am I really going to say that while I see significant systemic risk all over the place the Fed, with its birds eye view of the economy and with all their Econ Ph.D.'s, are wrong when they say that these risk are benign? Do they have better data than I do? Yes. Am I smarter than them and better at interpreting sid data? No. Am I a conspiracy nut that thinks they are trying to pull one over on me? No. So go with the flow. Add to the above that Paulson seems very comfortable with risks in the system and the level of liquidity. What will BOJ do? Will they even manage a puny increase in the face of strong domestic economic data? Probably not as they have te excuse that the average Japanese worker is not seeing the gains in the economy in their wages yet. I look at my trades the last two months and the majority of the longs have made money and the majority of the shorts with a couple of notable exceptions have lost money. As I have written before GS is a good indication of market sentiment and it made a new intra day high today. The thing to remember is that liquidity wins over valuation every time and I just do not see what is going to pierce the liquidity bubble. The plunge in pail prices and other commodities didn't do it. the sub prime blow up didn't do it. The short lived corrections in some of the EM's didn't do it. China slowing didn't do it. Corporate earnings slowing and tech orders dropping and inventories building didn't do it. I suspect that a strengthening Yen might have an effect but that hasn't happened yet either and the Yen strengthen a bit the last week and the Dow hit a new high so until something starts to matter the market will continue to suck in more and more money and positions will be pyramided. The risks are there but unless there is a trigger that makes them matter they don't. Its like all these guys selling premium and having a ball, as long as the party is in swing life is good and you may as well make the most of it, its a party that can go on a long time with increasing mania before it exhausts itself. Better to be in with the revelers than out in the cold. The key is to try not to get so drunk at the party that you miss the signs that it is coming to an end and that you always keep an eye out for where the exits are. http://www.bloomberg.com/apps/news?pid=20601087&sid=asJ9uk2dXICk&refer=home Loos like there is still plenty of liquidity out there.
Great thoughts. I always enjoy your market comments MVIC. Our occasional political disagreements aside....