Again we had a rally , but this rally is a suckers rally as I have been telling people and I continue to add shorts. Actually not quite sure, but I think yesterday the 13th july was the TOP in markets and we are heading down from here. But thats just how I see it now, we could continue to rally on momentum to MA(200) right above 1100 in SPX. What is interesting is that the VIX found support , but markets still rallied, indicating that the TOP is very very close if not in now. I see very little risk being short markets now and first target could be 1040-1050 and if this dosent hold we could see under 1000 pretty fast. Another thing is that Alcoa and Intel posted great earnings, but again this is only 2 companys posting profits? And markets turning just cause these companys turned profits? Is the debt crisis over? Is the eurozone crisis over? Retail sales, PPI and unemployment rate still good? Its so funny to see how the markets reacts and then ignores the macro fundamentals for just micro fundamentals of a company. But again this will turn soon.
I think the answer is inevitably "yes". The thing about the moving averages, is that you can see which points of data are about to fall off. Meanwhile, you can make reasonable assumptions regarding the points of data that will take their place. By doing so, you can construct a range of probabilistic scenarios. In this case, some high numbers are about to come out of the 50DMA, making it go lower. Meanwhile, some low numbers are about to come out of the 200DMA, making it go higher. Since both are VERY close to each other right now, it's safe to assume that the 50DMA will indeed fall below the 200DMA. So, that's probably bad news for the market...technically.
Fundamentally, it appears that Q2 turned out well for most companies. However, most of the investing world knows this and stocks have rallied about 8% on the news. Ever hear the saying "buy the rumor, sell the news"? Well, the rumor has been bought and the news is just starting to flow in.
This means that we have to look at the NEXT bit of news to figure out what rumor the market will be buying or selling. To me, it's clear that the global economic environment will come back to the front burner as the #1 driver of stock prices...and that's bad news for stocks. A good Q2 does not mean that the future is bright. Rather, I believe that Q2 will represent the peak of earnings health. Starting in Q3, good earnings will become a bit harder to come by.
Why?
1) Economic indicators are dropping fast. For all intents and purposes, the unemployment rate has not budged. Meanwhile, store shelves are stocked again, PCs have been upgraded, etc. In other words, the pent-up demand that drove the current rebound has almost run its course. What little remains no longer has the power to drive the economy as it has over the past 18-months.
2) "Follow the money". This is one of the most powerfully simple rules on Wall Street. When money is flowing into the economy (i.e. via lower interest rates or stimulus $$$), it's usually good for stocks..and vice versa. At present, interest rates can't go much lower and the numerous stimulus programs are losing effectiveness. This means that the money is no longer flowing in.
Worse yet, the money that was spent is not generally viewed as having been money well spent. This does not bode well for a new stimulus package to come anytime soon. In other words, money is not flowing in AND doesn't appear poised to flow in anytime soon. In fact, state and municipal budgets are being cut (money flowing OUT), while they raise local sales and income taxes (more money flowing out). if federal taxes go up in 2011, as planned, even more money will be flowing out. If you follow that, you should be flowing out of the stock market.
In short, barring a new stimulus package of other major money-flowing event, I believe the economy slips back toward recession. Whether or not we double-dip, we will almost certainty slip in that direction.
3) If you follow the money in Europe, you will run for the hills. Europe has decided to spin 180-degrees and shift from stimulus to austerity (if you don't know the definition, look it up -- you'll likely hear it again -- and not just from me). Effectively the opposite of stimulus, austerity will pull money away from the European economies...which tells us to pull money away from stocks.
Worse yet, the effect of the EU/IMF bailout is already wearing off. Greek yields are rising again and Portuguese credit ratings have been reduced.
4) Global bubbles are bursting. Most notably, home sales in China and Canada are starting to fall. Remember what happened when the U.S. housing market cracked? That's right -- that's what started this mess in the first place.
5) Politically, this period in time has a tendency to be bad for stocks. There is uncertainty around the mid-year elections...and the market hates uncertainty. Historically, the political picture doesn't become clear until October, at which point we might expect a rally. Until then, expect the democrats to do everything they can to retain their jobs in November. That means, "stop pissing off the public"...and the public seems pretty pissed about how the stimulus $$$ worked out for them (or more accurately, how it DIDN'T work out for them). Thus, the political pressure will lean against further stimulus until after the elections.
The Bottom Line: I believe that the market will start to reflect these concerns very soon. These are real fundamental concerns, which you can see reflected in the technicals. As the market reaches the 50DMA and the 200DMA, it will be inclined to retreat (barring some new, hugely positive news). Meanwhile, the 50DMA is 90%+ likely to cross below the 200DMA, giving the market more reason to retrench.
At some point, if the economy sinks far enough and if the market drops far enough, political pressure for more stimulus will mount. At that point, money will flow back into the economy. But that time is not now. Now, money is flowing away like the tide...and so should your invested capital.
No comments:
Post a Comment