Monday, June 29, 2009

Now What?

I'm trying to look into my crystal ball for the nearest future.


Technicals are mostly pointing up. S&P and Nasdaq composite are well above 200-day moving average and above 50-day and 13-day averages. Dow still can't get over 200-day MA with conviction, but I don't know how relevant is Dow right now. Markets are overbought, they are overbought for more than 3 months already. There is a small reverse head and shoulders formation in Dow, and kinda the same in S&P, but it's not conclusive for me.


Sentiment is still bearish. Majority on TV is bearish, majority in the 'net is bearish, even Warren "be greedy when everybody is fearful" Buffet is bearish. I don't see buying panic, which is surprising after 3 months of bull market. Sentiment being contrarian indicator, this is very bullish.


Nothing to write home about. "Green shoots" mostly exist in the imagination of bulls. Sure, speed of the decline slowed, but economy is still going down. Deflation rules, despite all efforts of Fed. Companies beat expectations, but most of those are very low, and year-to-year comparisons are scary. Fundamentals are as bearish as they can be.

Other stuff

This is the end of the quarter. After the whole bull market quarter you'd expect huge windows dressing buying. Somehow it failed to materialize. Huge bull market in commodities is even more confusing: there is no growth in economy! There is no increase in demand of physical products. But we see that, in Jim Cramer's words, commodities, or to be more precise, commodity futures, became an asset class of its own and lots of fund managers are buying them left and right. They think that they are buying "hard stuff", not so long ago we heard the same about real estate. And, of course, commodities crashed last year, destroying a lot of capital, there is no reason why they won't crash again. Another problem with commodities boom: higher commodity prices are putting brakes on possible economic growth. My feeling that these points are bearish.


I don't feel this market. By 2 to 1 vote, we should be in bullish territory. But fundamentals are still bad, and they matter more than technicals and sentiment combined. I am going to do nothing so far and try to understand what market is telling me. Of course, I will make an occasional trade if I feel like that.

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