He is just hedged, he thinks we're in for a correction, and he sold out some inventory, but he's still bullish. On the other hand, I an VERY negative. My fund is long June SMH 25 puts June SMH 27.5 puts June GE 30 Puts and short AOL GM KRB JPM C HDI FNM That and a large gold stock position is how I am playing this all. Most of these positions I put on in the last hour of trading on friday. My main question though is the same. Who is bullish. Who are the buyers. All I see anywhere are shorts who keep covering and reshorting higher. This worries me.
as you know, i am VERY bullish at this time. my models and cyclical studies are pointing to DJIA 9000 by the end of 2003. been long since 8280 in DJIA and 1380 in NASDAQ. don't worry bulls, there is much more going on here than meet the eye at first glance. best, surfer
Let's assume we see 9000 by the end of the year. End of the year? Hell, thats a full 7 and a half months to move 400 points. Big prediction. Let's say Joesixpack is in cash. Do we recommend Joe buy the DOW at current levels, with secondary indicators screaming overbought, with bullish percentages at extreme levels, for a 400 point move in the DOW--less than 5% gain? Or do we advise Joe to wait until stocks go back on sale to pile on. How odd to see a trader take such an all or nothing stand. You may be right, who knows, but is it really intelligent investing?
too many funds\people on the outside looking in hoping for a pullback so they can get in on this big rally they missed. any sizeable pulback will be bought. it will take something big to get sentiment negitive enough to get anywhere near new lows.imho the market doesnt trade on pe or the present economy or valuations. it trades on sentiment of future prospects and right now the market thinks things are going to get better and big money wants to buy stocks.
I don't know what to think. Bonds say the economy is weakening. The movement in gold and the dollar says that our economy is also weakening, with a chance of increased inflation. Yet the market is saying things can't improve. Only one is right. You take your pick. Gut feel is that stocks pickers are optimists, yet bond investors are pragmatic and look out at the future with more realism. History has shown that bonds are a much more reliable predictor. My only cause for concern is that we will probably be lower in a few months, but timing on the downside could be off. That is why I am using longer dated puts, volatility is so cheap anyway. Since Greenspan has indicated that he refuses to let there be no inflation, gold has rallied strongly. Yet bonds have rallied as well. Why aren't bonds pricing this in anywhere except the very end of the yield curve? I think the treasure is buying at the long end, but it inflation really has not been priced in at all. Anyone have any thoughts on this?
Monday, May 12, 2003 Getting in Sync After playing counterpoint, stocks and bonds are in harmony. Can it last? By MICHAEL SANTOLI IT MAY NOT BE QUITE as incongruous as lions and lambs lying down together, but the stock and Treasury-bond markets are no longer rushing in opposite directions. Since the latest stock-market rally went on the hoof two months ago, the government-bond market has remained firm, and in the last few weeks it has strengthened significantly. That's a profound change from the pattern of the last year, when every zig in the major stock indexes was unfailingly accompanied by a nearly equal, and opposite, zag in Treasuries. This loosening of the tight inverse correlation between equities and Treasuries, however, may be viewed as a logical inconsistency -- due to the sharp divergence of economic expectations among participants in the two markets. When these two asset classes were acting as if they sat on opposite sides of a seesaw, it was because stocks benefit from higher investor-risk appetites and quicker economic growth, while Treasuries gain strength from risk aversion and economic malaise. The balm for one should act as poison for the other. Stocks have gained some 15% since March 11 as Wall Street has focused on better-than-expected first-quarter earnings and extrapolated them to mean that an economic acceleration should begin by the latter half of the year. Corporate bonds, particularly high-yield paper, have also rallied ferociously relative to Treasuries since last October, another indication that some investors are betting resolutely on better times. Yet the yield on the benchmark 10-year Treasury -- which moves inversely to its price -- has remained stubbornly below 4%, and last weak dipped under 3.7% after the Federal Reserve noted risks of declining inflation and persistent sub-par economic performance. There are other apparent "disconnects" at work, too. The value of the U.S. dollar has slid anew in recent weeks (the last significant drop was in late 2002), and since the equity bear market began, stocks have been unable to gain ground while the dollar was softening -- until now. From 2000 to the present, the dollar and stocks have moved in the same direction 90% of the time, according to John Roque of Natexis Bleichroeder. So, what gives? The divergent perspectives of various market players can perhaps be partially explained by stock and bond traders viewing an admittedly ambiguous landscape through very different apertures. Stock partisans have taken heart in positive earnings numbers, and are even viewing the weaker dollar as a boon for corporate profits rather than a threat that foreign capital will flee. Yet, at the same time, the scant evidence of a manufacturing resurgence and the soggy labor market are enough to keep money sitting happily in Treasuries. The stock market has embarked on hopeful rallies several times before during the long downward slog that began early in 2000, on the faith that the economy and profits were recovering. There's a chance this is simply another one of those fleeting episodes. Viewed this way, the upward adjustment in stocks may have gone too far in the absence of better evidence of economic improvement. "This is a rally not yet supported by the economic fundamentals," says Donald Straszheim, president of Straszheim Global Advisors in Santa Monica "This will end up being a bad experience if the economy doesn't improve." He adds, however, that he believes it will get a bit better in the second half. Those who are betting that the stock market is correctly foretelling a pickup in growth going into 2004 should wish ardently for a selloff in the bond market that brings the 10-year Treasury yield substantially above 4%. That would "ratify" the move in stocks, so to speak. Jason Trennert, investment strategist at ISI Group, has been using 950 as an upside target for the Standard & Poor's 500, a level just above the current quote. He says, "If profit growth is going to be better than people think, for the right reasons -- meaning higher nominal economic growth [helped by higher inflation] -- then bond yields should be higher." Bonds were bought aggressively last week after the Fed raised the issue of too-low inflation. Yet dangerously low inflation should unnerve stockholders, given that it crimps corporate profits and top-line growth. It's also possible to argue that stocks haven't rallied enough to alarm bond investors. Tom Sowanick, fixed-income strategist at Merrill Lynch, believes that the most important point is that both stocks and bonds remain range-bound. He perceives the 10-year T-note yield to be contained below 4.25% unless the S&P 500 breaks above its late August 2002 high of 965. That, he figures, would convince bond watchers that stocks have broken out and drive them to dump Treasuries. Although market precedent isn't very rich with instances when stock investors have sniffed out economic turns long before their bond counterparts do, there's a chance that the long equity bear market and the heavy outperformance of bonds have made the public a bit too comfortable in hanging on to Treasuries. Bond managers also are being forced to buy Treasuries to compensate for their mortgage-backed securities being redeemed early. The Mortgage Bankers Association said homeowners' refinancings jumped sharply in the latest week. And professionals are now betting on the so-called carry trade, which involves borrowing at low short-term rates and buying longer-dated notes to collect the yield spread. A broad consensus that short rates will stay low is perhaps making traders overconfident about this strategy. Another factor: 1%-ish money-market yields have driven institutions to opt for bonds as a cash substitute. Christine Callies, chief market strategist at Bessemer Trust, remarks, "In a post-bubble period, there's no real penalty for chasing current yield. It's been possible to have your cake and eat it, too," by collecting bond interest with guaranteed principal. A penalty may be in the offing, though. She believes that the recent stock gains merely represent the removal of the market discount that arose from the prospect of a double-dip into recession, while government bonds have held steady for lack of clear economic acceleration. But Callies points to risks such as increased issuance of Treasuries with rising budget deficits, and the chance the dollar's drop will cause foreign holders of U.S. securities to become sellers. Sowanick raises similar concerns for the bond market: "In a low-yield environment, you shouldn't be in a search for yield" because the hazard of a backup in yields is significant. He adds that any further dissipation of risk aversion will trigger asset-allocation shifts from less-risky bonds to stocks. Clearly, the current uncertain juncture, with markets giving staticky signals, features multiple risks. Then there's the sobering possibility, noted by one strategist, that the disconnect is a mere blip, one that will vanish when stocks drop back into line with the dollar and bond yields -- once the diverting parade of corporate-earnings reports peters out in coming weeks. Then, too, it may be that money does matter. With the Fed staying super-easy, the sea of liquidity for now is floating stocks, bonds, and gold, and sinking the dollar.
One writer I really respect who is bullish is Mike Norman on RM. He is making the case that the real contrarian stance right here is being a bull, not a bear. This is such an uncertain time, I think a lot of the people I follow really don't want to stick their necks out to far. From a position trading standpoint, I can't figure out why anyone would go long right here. There is a convincing technical case that we are at or very close to a high, and the fundamental case isn't based on anything excpet hope, which is a dangerous thing. I would feel different if the bond market were confirming the stock markets anticipation of a strong second half, but it is not, nor is the dollar. Bond/Currency traders are notoriously better at calling the economy than we are. I'm not betting agaist them.
Another factor is this. If we have a clearly impulsive decline next week below 919, the chances that a high is in and a Wave 3 down has begun becomes very high. I'm figuring that the first impulse down will be bought aggressively, and wave 2 will be a deep retrace, possibly 78.2% - and the bulls will feel good. Then we turn over again and the bulls realize that dip buying only works until it doesn't and the mad scramble to unwind longs and reestablish shorts begins all over again. At this point the media will begin to toughen up on the econ numbers, deflation etc... and we could be at 840 in a flash. Just a thought.