May 5th, 2009

A Conversation with My Other Self

If you’re like me, you’re confounded and frustrated by this market because you’re seeing it speeding ahead faster and further than you ever expected. You are either still sitting on the sidelines or, like me, you’re up to you’re scurrying about trying not to lose all the relative performance gains achieved from having been in cash when the market was being sliced in half by putting the money you do have (about 35-40% invested) at work in high volatility stocks just trying to not fall to far behind the market.

There’s not much intelligence or guidance in the headlines either. Take, for example, the items I recently received in a recent Google Alerts email culled from news stories, blogs, etc. including the terms “bull” or “bear” market:

  • There is a good possibility that the market’s rise since March 9 is a bear-market rally rather than the beginning of a new bull market….
  • So as the debate rages on about whether the current rally is a bear market rally, the beginning of a new bull market or a cyclical bull market within a …
  • But many of these jokers are telling the world we’re at the start of a new bull market in equities, while others continue to preach doom and gloom and …
  • As the stock market gains 20% in a matter of weeks, some have claimed a bull market has already begun, but can such growth be relied upon? …
  • “A range-bound market seems more likely than either a bear or a bull market for a while, though I see more upside than downside down the road,” he wrote. …
  • … and traders are still trying to figure out whether this rally — which began March 9 — is a bear-market rally or the beginning of a bull-market rally. …
  • However, today’s percentages remain lower than those from the end of the last bull market and the beginning of this bear market. …
  • This is a clear reversal from the prior Sector Rotation patterns, and could be in part a result of large funds unwinding hedges to an extent. Again, if we are to see any sort of bull market beginning, this is what it would look like (or …
  • Anthony Bolton, the legendary fund manager at Fidelity has declared the start of a bull market and if there is indeed a world economic recovery towards the end of this year that would figure. In the past, shares have turned up somewhere …
  • Sumner Redstone, executive chairman of CBS Corp , said on Wednesday that he thinks the US stock market is at the beginning of a Bull Market
  • The bull-market versus bear-market-rally debate has been going on for a while. A few analysts have been advising caution and riding out the current …
  • We think the bear market rally will end sooner rather than later. The market is at a critical juncture. We see three potential scenarios: 1) The next bull …
  • “It’s very important to remember that we are still in a bear market and still have quite a lot of problems ahead of us,”
  • “I think this has been a bear market rally and we’re likely to see a bigger pull back,”
  • The recent secondary offering by Goldman Sachs, could well mark the top of this bear market rally because GS, we believe would only issue equity at these …

Sound’s like they’re just as confused as we are and don’t warrant our confidence. So let’s try to figure this out together. Listen in on a conversation I’m having with myself as I try to figure this market out and come up with a strategy to follow.

  • Market hasn’t yet crossed the important 180-day MA, the critical signal for an unequivocal “all-clear” green light signal indicating minimal risk of a continuation of the Bear Market and a high probability that the momentum trend has turned to the upside. While the Index got awfully close, it hasn’t yet done it (Index is just 2.9% below the MA).

    Note the progress made since I first wrote about the 8 Hurdles to cross; only two remain to be crossed, the 180-day moving average and a trendline from the Tech Bubble Crash.But close isn’t good enough since the Index touched the MA last May in a true Suckers’ Rally; it failed to cross with conviction and the Bear Market actually resumed with vengeance. So to be on the safe side, I say to myself, I’ll want that crossover before investing more.

  • How about that Moving Average Tracking report, the trends of more and more stocks have turned positive as indicated by they’re crossing above their various Moving Averages. If a stock is not above a long-term moving average, like 180- or 300-day moving average, then it hasn’t developed a reliable up trend. But hold on, even though increasing numbers have turned positive, many haven’t yet reversed the effects of the bear market with 85% still below their 300-day and 63% below their 180-day moving averages. The extent and speed of the market’s rise since March 9 is unprecedented and results principally from the depth and speed of its preceding decline.

After moves this extreme, both buyers and sellers are worn out and need to regroup during which time the market will correct at worst and move in a horizontal channel at best. From a charting perspective, it wouldn’t be unusual to expect the market to retrace forming a right shoulder before moving further ahead.

I conclude my conversation by kicking myself with my right foot for keeping 60% of my money in cash and losing out on an easy and quick 30% profit …. and with my left foot, I kick myself for putting 40% of my money at risk before the market has actually proven that it’s not going to disappoint and lose money as it did just about a year ago.

So much for having a clear vision.

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