July 23rd, 2008

Has Anything Really Changed?

For those who feel that we’re still in a bear market, the last several days have been excruciating.

  • It’s great that many financial stocks are surging but, give me a break! They’re surging because their losses, though still humongous, weren’t as large as the wise one’s on Wall Street expected that they would be. (The implication being that they actually factored their write-off estimates into some valuation models resulting in the WAMU, Fannie Mae or any of the other financial stocks’ 86% declines.)
  • Another reason is that what everyone was hoping and praying for … a reprieve from intolerably high oil prices …. had dropped back to where they were which they were at the beginning of June. Then we were worrying about the adverse effect the oil prices would have on our economy and today, when it declined to the same level, it sends the the market up over 1%.As reported on CNNMoney.com: “A pullback in energy prices is going to be a beneficial move for consumer spending, corporate spending, and the macro economy,” said Art Hogan, chief market strategist at Jefferies & Co. You have to be joking!
  • Today, there’s thankful talk that the Fed may start raising interest rates to help moderate what nearly everyone expects is going to be an onrush of inflationary pressures. Remind me … is increasing interest rates supposed to coincide with increasing markets or market declines? I thought interest rate changes and market changes were inversely correlated.
  • And what about the exchange value of the $US. Higher interest rates are supposed to help here also. But with the ever increasing federal budget deficit and slowing economy, higher interest rates may not help here either.
  • Many said that the stock market won’t regain its health until the housing market regains its health. Many of these statistics still look abysmally bad with little indication that the housing market has turned.

I went out on the limb last night saying that the MTI intensified its bearish market signal. I woke this morning thinking that the futures were indicating a severely down market open as a result of a batch of poor earnings reports. The market did open down but as the day wore on and especially in the last hour, it recovered and went on to post a 1% gain.

Was my call dead wrong or just early/postponed? It all depends on whether you think a bottom has been put in …. the S&P 500 will not go lower over the next 3 months than the 1200 it hit just a week ago. I’m sorry, I haven’t see enough evidence to indicate that all the bad news we’ve been obsession about has begun to moderate.

If this were an bull market and there was a 1% downside reversal, everyone would be saying “don’t sell, it’s only a correction”. But when it’s the opposite, a 1% gain everyone is only too willing to throw caution to the wind and tell you to “take advantage of the bargain prices and buy, buy, buy.”

That’s why you need an unbiased indicator, like the MTI, to regulate emotions and even after today’s market action it’s still signally an “all cash” position.

Subscribe below or click here to learn more about help for navigating turbulent markets.