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Coolhand's Market Analysis

Bullish, but sidelined

Rating: 3 votes, 3.67 average.
I decided to go all cash just prior to Christmas, mainly because the SC rally was pretty anemic at that point and I was going to be out or town for awhile. I felt it was better to be safe until the market returned to normal trading in January when a better read might be discerned about direction. Since the 2nd of January was technically still part of the holiday period, I interpreted its action as a part of holiday trading.

This week the holiday period is over and in two days we've had a pretty decent continuation rally. I might normally be concerned about the short term readings of this market as they are getting stretched, but the downside we experienced last quarter could provide some serious upside action, even if we do eventually test the November lows again. I had been talking about this scenario for awhile prior to going to cash 2 weeks ago and while I feel good that I had the right read, I didn't play it aggressive enough to take full advantage.

Still, I'm pretty sure we'll see some significant downside eventually, but we may need to convert a few more bears first.

The overall market continues to improve, although it still has a long way to go. A full recovery should take months to years to complete.

Today the tone of the market was bullish as the advance/decline line was substantially higher, with most sectors rising and volume about average. Nothing bearish about that.

The VIX is still very high at 38.13, although volatility is nowhere near as crazy as it was over a month ago.

The 3-month T-Bill is yielding .13%, which is up 5 basis points today. This suggests that bonds may be turning, but whether it's longer term or just a short to intermediate term correction remains to be seen. The major ramification here is that as this cash flows out of bonds, much of it will find its way to stocks. Especially as those folks see the markets continue to recover.

Mortgage rates continue to drop as well, which is another major plus for long term market growth.

I can't say I'm comfortable in cash right now as this market grinds higher. I'd feel much better if we could get another significant down leg soon to buy in to. If that happens I'll gladly ride the roller coaster again. The more bulls that get on the current train upward the sooner that down leg should happen.

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Comments

  1. Diesel's Avatar
    You're not alone Coolhand. I feel the same way you do but I'm 100% Fund at the moment. I really don't think we're out of the red yet. Thanks for posting your insights.
  2. Bullitt's Avatar
    I think it's safe to say that the Santa Rally is another fictitious product of Wall Street.

    Seems to me like the retail investor is itching to make money short selling this market. Perfect example is that nearly every blog I check, they are claiming Treasuries are in a bubble and recommend TBT for purchase. Problem with that is, the Treasury Dept. might keep rates low for a long time or even take them lower. Of course once the TBT trade goes bad for these folks they are going to blame it on the PPT. Corporations went under trying to short sell Oil in 2008.

    Point being, I believe the easy money has been made on the downside and that's just as the retail investor has begun to read about 3X Bear ETF's. The talk of the investing magazines for 2009 is to 'hedge' with inverse funds. Give me a break. Besides, one sounds much more intelligent when they tell their buddies at the gym that they are currently 'Short' a particular equity.

    I think this bear market rally will resume once it drops hard a few days shaking out the investors who watch the news too closely, while the big money comes in at the 850-875 levels with volume.
  3. coolhand's Avatar
    I'm looking for a simple counter-trend dip at this point. If SPX can get back to the levels you mentioned, I'd be scaling back in. The IT rally is still intact at the moment, even with today's moderate drop.

    I love those 3X leveraged funds. Made some good money on TNA and FAS lately. Don't bother with individual stocks anymore.
  4. Bullitt's Avatar
    Another lesson learned in 2008: No more individual stocks. They are an absolute suckers game.
  5. mick504's Avatar
    For me it's hard to believe the S & P can maintain a number of 900. Money has been thrown around to no avail...no improvements in the problem of worthless mortgages and related securities that have caused this downfall. We haven't fixed the root problem but have danced around it still. Ah forgot about the Stimulus package yet to be unveiled! Will this fix the root problem?
  6. mick504's Avatar
    I just moved from C to G at about 890 Friday...1/10..waiting for a lower low!
  7. coolhand's Avatar
    Lower low from November? Maybe, but I'd be scaling in on the way down in case we don't get that far. But that's just how I'd play it. Looking for 850ish right now to begin getting reinvested.

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