A Counter-Rally that Never Really Happened
Posted by Frugal on February 15th, 2008
After a big dive in January, stock markets quickly rallied for less than two weeks and fizzled away.
Congratulation to all the stock market bulls. The bull market since 2003 has been so relentless that it destroyed all the bearish shorts. Without the shorts, there is no short-covering in significant amount. So the markets fell into empty vacuum, and drift with a downward bias.
I have been expecting a rally that hasn’t materialized. Or will the markets rally towards early March, or March 18 when Fed will take their next 0.5 % cut? I just can’t tell from the charts. But it’s quite likely that S&P will NOT go to 1400 anytime soon in the next 2 to 3 months. Brian Stoll puts it very well that for S&P 500 to go to 1420 to 1500, it is the kill zone for short-sellers and longs who want to lighten up. Markets will frustrate the majority of the people most of the time.
I also believe that the stock market simply has not factored in a more serious protracted downturn. The only question left is that will we see a mirage of economy turning up mid-year before everything goes out of window again? It is indeed possible due to the aggressive Fed cuts and government bailouts.
While Jim Puplava is still bullish for the year, and bullish in tech infrastructure, I’m totally in the bear camp now. In fact, I’m considering placing a restriction for no more tech on my managed portfolio. I just can’t see how markets can rise to a new high. I think ANY rallies at this point will be counter-rallies in a long term bear market unless there is a massive effort in inflating. However, when that happens, the beneficiaries are probably commodity and emerging economies.
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February 15th, 2008 at 11:36 am
Good analysis. I agree. The last run up was merely shorts covering their positions. I just don’t see this market finding real leadership to head upwards. Homebuilders have done well, but there is still an enormous amount of supply in housing. I can’t imagine they will turn around. Financials face a tough row to hoe. Along with more subprime losses in the future, I expect to see an additional $500 billion in writedowns from the credit default swaps on low graded corporate debt.
February 18th, 2008 at 7:02 am
Hope this will happen soon,
great post,
Tracy ho
wisdomgettingloaded
February 18th, 2008 at 12:15 pm
I hope you are right. There are clouds in the economy.
Good post.
Ricardo Rojas
February 19th, 2008 at 10:13 pm
Frugal,
I am hoping that the housing prices continue to decline in California (so I can buy a place). However, I am very sorry to hear about your stock options and your company. I have been reading your blog for about a year and a half and just started my blog this week. I hope to be able to share great information to the internet community as you have. I am not sure if you want to disclose, but I was wondering what company you worked at.