Stocks in a Vacuum Up Scenario

Discussion in 'Trading' started by Tide31, Mar 14, 2009.

  1. Tide31


    There is so much negativity out there still that one of my biggest 'concerns' is the vacuum up scenario. This is a rally much like a steep selloff where it is very difficult to get a substantial entry point. We saw this on Thursday. With the market up big it was difficult to buy them at any point during the day. They never backdrafted to give an entry. There is way too much capital on the sidelines and the biggest fear amongst portfolio managers right now is a severe updraft where they are not participating fully. If the market goes down and they lose, they are in good company, if it goes up and they miss, it could be career-ending after surviving last year.

    Why would stocks go up? Simply, if corporate profits as a whole were off 10.8% in 2008, and the stock market was off 45% and another 15% this year even after this rally, stocks are in fact trading well below this years multiples of expected cash flow. Why are banks rallying, aren't they going bankrupt? No, with write-offs behind them why is everyone 'shocked' that banks are profitable in the first quarter. With a steepened yield curve banks borrow cheap and lend much higher. They sell the yield curve, this makes them money. They are in the low margin facilitation business, this is their bread and butter and it is profitable. If they get a chance to actually mark UP some of their 'bad debt' portfolio's off of conservative marks, they can have earnings surprises on the upside later this year.

    Managers of pensions, mutual funds, hedge funds etc. are all sitting around worried this weekend that they are under-invested, trust me I was in that business for 20+ years. They cannot afford at this point to come in underperforming the S&P 500. This is their 'nut'. While not predicting this, I would not be surprised if we were up on the year by the end of March or sooner. I can't tell you how many analysts have come to me pointing to stocks in their sector saying, "this is crazy" - trading below cash value, book value, half the PE they have been afforded in the past etc...

    This is a horrible recession, housing prices will not go higher for a long while, businesses are laying off people. This being said, the stock market is forward looking, 6-9 months is the standard for valuation. With lowered overhead and cost-cutting in place, companies will still make money, and not 50% less than they did last year which is what these levels are affording them. All the posts on this forum talking about shortable 'bounce' only confirm my thesis. Lose money on the selloff, capitulate and get out or even short them, and lose money or don't participate on the rebound. This is a typical 'nightmare' scenario which is playing out right under our noses.
  2. Tide31


    Vacuum enabled. 1001 more Dow points to up on the year!
  3. Watch out, this is just an institutional squeeze on shorts. There aren't many retail players in the market these days. So, this will be a barn burner rally for a week or two that will crash and burn. Once all the institutions cover their shorts and get long, who will be there to be the greater fool and buy from them.
  4. The volume sucks. I suspect it's the end of Q1 rally. We don't want to many 401kers to commite sucide when the open there Q1 statements.
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  6. Tide31


    800 to go for flat on the year. I just wonder if there will be a lot of adjusting for month/quarter-end on and before Tuesday to exacerbate a vacuum up. Any money not invested looks dumb at this point. PM's don't want to show a lot of uninvested cash at Q1 end with a hot market. Banks are up 50%+ across the board since 3/9. There might be technical buying/window dressing to get these names on the books for the end of the quarter. Thoughts?
  7. AAA30


    EOD buying lately looks like you are right.
  8. I have to commend you on making a coherent argument. You don't come across those very much around here.

    I happen to disagree that un-invested money looks dumb at this point. I still think this is possibly a bear market rally(Which I enjoy). Even if I'm wrong, a 20-25% in two weeks will get a pretty good correction (I'm thinking 10-14%). If you're still convinced that the bottom is in, you can make your move then, and scale in on the correction.

    I don't think that makes un-invested money dumb, it just makes it cautious.
  9. Tide31


    I am not a raging bull right now necessarily. I think stocks got way too cheap from all the unknowns as in my initial post, and feel that Institutions, pensions, hedge funds who are the drivers of the market are forced to participate in the rally. Money away from these managers are not dumb to be watching right now. I certainly would not go out long tuesday if we rip into Q1 end.
  10. AAA30


    I have never given much thought into the end of quarter end of month stuff but wouldn't Q1 end be on Monday when you include settlement?
    #10     Mar 26, 2009