Monday 30 April 2012

Day After Tomorrow.

Like clockwork, we had a red day today. Nothing serious, at least not yet. It just let out some excess steam before reaching the April 10 high. We are about 25 points away from that and I expect the retest will happen by May 2, Wednesday.  While the momentum is definitely weak, there is no sign of definite sell signal yet. But it looks so similar like last year which I have marked in a rectangle.

If this pattern is to play out we might see an overshoot of the last high. It may not be a bad idea to start laying the defensive bets now onward.

When the correction comes, it will be fast and furious and will not give us much time to take advantage. But at the same time, it is risky to front run, as I keep saying. So we will have to pick up sectors where there are definite weaknesses.

Copper is having a bounce but given that the demands in China are slowing; it might be a safe play to short copper. Oil is another one, because oil sells off every summer. Emerging markets are struggling.  Financials do not look particularly strong nor do Russell 2000. We will see what day after tomorrow brings. It does not have to be all in at one go.

For tomorrow at least, I expect the market to be up if not substantially.  If on the other hand, we do not end strong green tomorrow, it will confirm that the end is close. I would like to end today’s post with a quote from the famed investor, historian and economist Peter Bernstein. ( Hat tip to Joshua Brown of reformed Broker) :

“I have opted for more conservative ideas and not aggressive ones.”
"After 28 years at this post, and 22 years before this in money management, I can sum up whatever wisdom I have accumulated this way: The trick is not to be the hottest stock-picker, the winning forecaster, or the developer of the neatest model; such victories are transient. The trick is to survive. Performing that trick requires a strong stomach for being wrong, because we are all going to be wrong more often than we expect. The future is not ours to know. But it helps to know that being wrong is inevitable and normal, not some terrible tragedy, not some awful failing in reasoning, not even bad luck in most instances. Being wrong comes with the franchise of an activity whose outcome depends on an unknown future (maybe the real trick is persuading clients of that inexorable truth). Look around at the long-term survivors at this business and think of the much larger number of colorful characters who were once in the headlines, but who have since disappeared from the scene."

I am reading the above post again and again and would request you to do as well.


  1. Great post again!!!! and man that quote, its AMAZING!!!!!
    thank you so much for all your hard work!!!

  2. I would not recommend shorting this market for an extended period of time but of course their will be a good opportunity to make a capital gain shorting the market if timed right, but not for the long term. The fed has increased the money supply to record amounts with expansionary OMO. Businesses now have enough excess capital to grow and expand their operations and in turn expand their workforce creating a plethora of jobs. Although this job growth has not yet occurred it will sooner than later mark my words. The lack of economic growth is not because of a "liquidity trap" where our quantity for money demanded is infinite but simply because of the lack of faith in fiscal policy leaders by many businesses and corporations. These businesses now have the power to expand their operations and create and abundant amount of jobs due to QE but there is a lack the faith to commit due to the fiscal uncertainties. The Fed has done their job implementing their monetary policies, and there will be no more quantitative easing. It is now quite simply up to fiscal authorities to provide the reassurance to American businesses to allow our economy grow and prosper. Also for those worried about Europe they do not affect our GDP as much as most might believe or want to believe although I do understand markets are more globalized than ever before. $SPX 1450 is guaranteed 1570-1600 is highly probable in time as long as we have proper guidance. As a Side-note any more QE will surely lead to inflationary times...2012 is for the bulls as we escape from a double dip recession and prosper into a period of greater growth.

    1. I agree with you to the extent that it is not advisable to short the market extensively now. Regarding the Fed and economic growth, history will tell. I think at some point they will not be able to keep the balloon inflated any longer but there is still some time for it to burst. We may see SPX 1600 before that.

  3. Nevertheless i find the commentary extremely lucid and wise.

    Thanks Mircea.