Market Discussion

[David Randolph]

Well the SPY is definitely playing with the trendline... Hope it will close on the upside again...

Amarens

Speculators sold the market short below the key trendline, but commercials didn't let it break, pushing the market up ferociously over the last few minutes of trading. Volume on the SPY was the second highest ever.

I would say the bottom was today, but we need a close above $149.46 to get confirmation. Hopefully speculators will pay the price when the market pushes up to a new all time high by the end of the year.

I'm curious to see the Commitment of Traders report that will be published Friday, the 3rd of August.

[stocky]

I am interested in what the commercials are doing as per Aug 3 report. Hope David found time to review it.

[Garoh]

This was really ugly for the market ..   

On the weekly chart I saw a clear sign last week that the market will drop more and more...

I hope it doesn't go any further ..

I'm still at my point of view about the market ... and yesterday's sharp drop was a confirmation ....

I wish I'm wrong 

[jackyw]

How to Play the Market Sell-Off
http://finance.yahoo.com/expert/article/futureinvest/40790


A good read....

[mbaugh]

How to Play the Market Sell-Off
http://finance.yahoo.com/expert/article/futureinvest/40790


A good read....

That article reflects every word David has said all along! I guess Jeremy Siegel, Ph.D. subscribes to 3stocksonfire 

Keep up the good work David. 

[la-onda]

1)
Shadowtrader update  :
http://www.shadowtrader.net/videos/sunday080507st.html

2)
DK quotation:
...
It was clear from the beginning that Wednesday was not the perfect bottom. Not only was the dip shallow, numerous bottom indicators were far from triggering Buys.
Friday confirmed this assessment, and the NASDAQ closed at a new, 5-month low. While the Composite saw an ugly outside day, the SPX, NYSE and WLSH each sliced through their 200-day. This was not a good development, and the NASDAQ is likely to follow its peers lower.
Unfortunately, leading stocks are giving no clues that a bottom is near either. On Friday, the IBD100 tumbled 3% as just 13 of 100 stocks closed higher. The selling was heavy also, as 42 stocks saw distribution. The Composite is in bad shape, and it's going to get worse before it gets better.
....

The weekly SPX shows an index headed into no-man's land. After 5 years, a proper correction of 10% or more appears to be underway. After all of the drama this week -- Bear Stearns, AHM, the Beazer "bankruptcy", weak factory and jobs data, etc. -- the SPX slid just 1.8%. It's also only 7.8% below an all-time high. A lot of pain lays ahead for investors on the wrong side of this move, and the chart below includes a couple of famous landmarks. 1400 and 1320 are key levels, and both should produce buying interest. Whether either becomes the low of this correction is impossible to tell at this point.
......
Financials and Energy had terrible weeks, and they were the worst performing sectors. The market is also showing signs it's hunkering down for bad weather. Healthcare, Consumer Non-cyclical and Utilities were the only three sectors in the black for the week.
It's still early to be searching for value in Financials and Energy. These charts have more work to do.
.......
Please read the complete analysis incl. charts:
http://dkreport.blogspot.com/

just to have both "sides on this thread", personally I am continuing to follow Davids recommendations 
cheers
Oliver

[pinoleropuro]

this is the prediction of a market timer saying that we are in the 7year market cycle and his predictions is pretty gloomy for the second half of the year.

the way the market is going and what his chart is predicting there seems to be a great deal of similarity. 

what do you guys think of this video on CNBC?

http://www.cnbc.com/id/15840232?video=438756672

[Houlahan]

Thanks la-onda for sharing.
A lot of trend lines broken. 
I will take one week at a time.

[tokyopua]

The down volume on the SPY is huge, makes even the Feb selloff look small... I feel OK about holding select tech stocks, but anything financial seems like suicide here.

[David Randolph]

Good morning

I tried to get my head out of the stock market during the weekend, but of course, I couldn't.

Friday's sell off was too serious, as the SPY broke down below a key support area, with enough volume to prove myself wrong about the "we're at the bottom" call:

I am interested in what the commercials are doing as per Aug 3 report. Hope David found time to review it.

Hi stocky, indeed, I reviewed the Commitment of Traders Report, and commercials are still long and speculators are still short, more or less in the same proportions of the last week.

But over the weekend I thought: Who are the "commercial hedgers"? And the answer is, they are the Goldman Sachs, the JP Morgans, the Bear Sterns of this world, exactly the stocks that are dragging the market down (check their charts at the links). Should I follow the guys that are suffering the most?

Next my head went to one of the other lessons I've taken over the years, which is, "nothing, no theory or indicator is always right about the market".

And considering this I got to the conclusion that I couldn't base my investments or recommendations on the Commitment of Traders Report.

I've read a lot of bullish and bearish arguments over the past few days and thought about several of my own, and even though you don't pay the 3 SOF subscription fee for me to have doubts, I must say that I'm in doubt.

About the macroeconomic situation of the United States I thought the following article was quite revealing: Going With the Flow?

The bearish arguments and evidence constant in the article are not new (I remember many people had the same bearish arguments around the market bottom in 2003), but because they're so long term, it is possible that they took four years to materialize in terms of a macroeconomic shift towards more savings and less debt, which is actually a sound long term direction, but the short term adjustment can be dramatic and prolonged. The short term, when we're talking about macroeconomics, can be very long, just think of the Nikkei 225 Index 17 years old Bear Market because one day the Japanese decided they wanted to save more (not that they had any choice, like the Americans don't).

Back in March the market sold off for the wrong reasons, at the wrong time, but now?

The bears seem to have a lot more strength and truth in their arguments.

Anyway, I have many doubts about the gloom and doom scenario, because the opening of the World, the emergence of the BRIC (Brazil, Russia, India and China) countries as economic powerhouses is truly amazing and could support another 20 years bull market. 

Moreover, in a long term investment strategy perspective, no business owner is going to sell his business just because there can be an economic recession in the US, so why should I sell his business? I truly love the microeconomic approach to investing in stocks, and there are stocks in the Main Portfolio that I'm not willing to let go whatever happens to the general economy of the United States or the World for that matter. They're individual stories and are a lot more dependent on their niche sectors and management's skills than the economic cycles.

Saying this, I can't ignore that the Main Portfolio plunged from a gain of 27% in 2007 to the current 8.9% profit for the year, as the S&P declined from a 10% advance to the current 1%. I can't ignore that if the S&P 500 falls another 10 or 15%, probably the Main will fall into negative territory for the year, and may even go 10% or more into the negative territory. There's a real possibility of this happening if nothing is done.

What I would like to do is to keep holding my specific story stocks, but at the same time protect the portfolio from the general market risk. I would say a 60% long/40% short exposure would be ideal. If I invest 20% of the Main's capital in those two times leverage short funds I would  get to a 40% short exposure.

Since I have 8.06% in cash already, I just need to sell about 12% of equity in stocks to be able to buy 10% of equity in SDS (ultra short S&P 500) and another 10% in TWM (ultra short the Russel 2000). Because these funds have a two times leverage I would have 40% short exposure. But I would also have 80% long exposure, with the portfolio, in practice, being 120% invested. With time I would probably let go of three more of the long positions to get to the 60% long/40% short "ideal" exposure to a possible bear market.

There are a lot more justifications and questions to be answered, but there's not enough time now. We'll keep this thread alive and possibly merge it with the Correction or Bear Market? thread. 

My plan is to sell two holdings of the Main Portfolio and buy 10% of capital in SDS and another 10% in TWM. But I still don't know which ones to sell, I'm going to review the individual story on them all and pick two to drop out.

Have a nice day

[berloga]

SPY seems to have been trading in this uptrend channel since before 2004. There is an upper resistance that was broken in September 2006 and became a support. Then, in March 2007, SPY corrected to that uptrend support and bounced off. That support stands at ~$141 again, which is ~2% down from the present level. The next uptrend support line stands at ~$132 today, which is too low to wait for. I think panic is typically a lot stronger in people than the euphoria, nevertheless let's see how that 1st support holds.

[babouk]

I don´t know what think about 3SOF performance Index up, 3SOF down

[tokyopua]

I don´t know what think about 3SOF performance Index up, 3SOF down

Today was largely a rally in the financials which are heavily represented in the major indices, I think that is the simple explanation... could also be that small caps didnt rally in specific, as it seemed many 3SOF stocks did close red which I agree you only usually see on big market down days. 

Also, ICOC and NGA just happened to have pretty a pretty bad day that brought things down overall. 

I suppose that this is the kind of thing that happens some days when you are a long term investor, and its the kind of day you have to learn to deal with.   At least now David has added a hedge.  I didnt yet add a hedge because I always mis-timed them when we had the February correction.  I suppose I might consider adding them tomorrow now that the big move is over, though I would probably still wait till after the Fed meeting to see which way the market wants to go.  If the Fed magically decided to cut rates tomorrow, which is only a remote possibility, then hedges could hurt a lot.  But if they just stay neutral and dont even address the credit issues, then things could go south again quick in a hurry.

[David Randolph]

I don´t know what think about 3SOF performance Index up, 3SOF down

Today was largely a rally in the financials which are heavily represented in the major indices, I think that is the simple explanation... could also be that small caps didnt rally in specific, as it seemed many 3SOF stocks did close red which I agree you only usually see on big market down days. 

Also, ICOC and NGA just happened to have pretty a pretty bad day that brought things down overall. 

I suppose that this is the kind of thing that happens some days when you are a long term investor, and its the kind of day you have to learn to deal with.   At least now David has added a hedge.  I didnt yet add a hedge because I always mis-timed them when we had the February correction.  I suppose I might consider adding them tomorrow now that the big move is over, though I would probably still wait till after the Fed meeting to see which way the market wants to go.  If the Fed magically decided to cut rates tomorrow, which is only a remote possibility, then hedges could hurt a lot.  But if they just stay neutral and dont even address the credit issues, then things could go south again quick in a hurry.

I agree with your view Tokyopua

The S&P 500 rose on the back of financials, which have been doing poorly throughout 2007:



The banking sector rose more than 5% today on what I believe was a short covering rally before the FED meeting. I don't think the FED will cut rates at this meeting, because that would spark even more panic in the market (after the initial jump), because people would start thinking: "what does the FED know that we don't about the financial system?"

But I believe the FED will go from a tightening bias to a neutral one, and it will indeed cut rates in the not so distant future. The problem is, cutting rates, at this point, will help, but it won't be enough, in the same way the Japanese cut interest rates to 0% and that didn't prevent the bear market in stocks or the economic recession.

The lack of new debt, as people enter a "debt diet", will make banks lose a lot of money, going from profits to losses. And banks' "attractive multiples" are as attractive as the ones home builders had before they collapsed.

I don´t know what think about 3SOF performance Index up, 3SOF down

Hey babouk, it was indeed an awful day for the Main, but don't think, wait until the end of the month before jumping into conclusions due to poor short term timing. Remind me of this when the end of the month comes.

Moreover, as I look to my watch list with hundreds of stocks, most of them went down today ... even though the S&P 500  was up almost 3% on the day.

Thanks

[stocky]

Time and again David has beaten market. The random pendulum trading of these days wont make anyone rich unless you are running alogrithmic trading. I always envy these guys who can trade with bots. Let us not cloud David's judgement.

I think the anti-Inflation sectors like GLD may be interesting places to be if and ever fed take the easy way out of cutting rates. Inflation is here just compare your last year grocery bill with these days one. The gross erosion of buying power of american consumer should not be taken lightly.