May 24th, 2010

Damaging To Your Financial Health

You have to be very cautious about some of the stuff you read on the Internet written by so-called investment managers of all strips (present company excluded, of course, since I’m not a paid professional). Here’s just a sample I happened across (names have been omitted to spare the professional managers from further embarrassment):

  • “The Standard & Poors 500 Index is likely to rise to new highs for 2010 after last week’s rout removed “excessive bullishness” without pushing the benchmark below a key level ….The benchmark index for American equities, which wiped out its 2010 gain in a 6.4 percent plunge last week, suffered “limited technical damage” as it closed above its 200-day average….The majority of the evidence suggests that we will manage to extend this cyclical bull rally for another few months.” (May 13, 2010; S&P 500 at 1157.44)
  • “The biggest drop in U.S. stocks since the bull market began may be over after the Standard & Poor’s 500 Index generated a chart similar to the one that signaled the market’s last bottom….The benchmark formed a hammer-shaped candlestick on May 17, trading 1.8 percent below its opening price before rallying later in the day to close near the day’s initial level. At the same time, the body of the candlestick was located within the range of the previous day’s, generating a bullish harami — a reversal during a downtrend — for the first time since February.” (May 19, 2010; S&P 500 at 1115.05)
  • “Fundamentally, stocks are looking pretty cheap,” with the price-earnings ratio of the S&P 500 has dropped from 17.7 on Apr. 23 to 15.7 on May 21. The average p-e ratio over the past 30 years is 17.8…..buying stocks hit the hardest by the recent correction, especially technology stocks and companies in economically sensitive sectors such as industrials and materials. That’s where you can get “the biggest bang for your buck,” the stocks likeliest to bounce back the most whenever a bull market commences. (May 23, 2010; S&P 500 at 1087.69)
  • “clients who come in with longer-term 3% and 4% certificates of deposit that are maturing are shocked at how hard it is to secure just a percentage point in today’s money markets. Yet they remain wedded to an ‘anything but stocks’ mentality. People have gotten hit real bad and watched their investment houses get bailed out—or worse—and then interrogated on Capitol Hill. So you gonna listen to your broker?”… since last year’s market bottom investors have pulled $24.6 billion out of mutual funds focusing on U.S. equities; over the same period, they’ve channeled $455.6 billion into bond funds…households have $7.8 trillion in bank accounts and money funds. (April 29, 2010; S&P 500 at 1206.78)

The reason I bring these to your attention is because, honestly, there’s not much for me to write about these days. I don’t see any new Industry Groups that are moving contrary to the market. With market momentum, as reflected in the moving averages, clearly pointing down, there’s little incentive to search for stocks to buy. The decision I’m facing is deciding when and how much of what remains to sell (currently, my cash percentage is about 50% with another 20% in hedges).

The S&P 500 Index is a mere 5% above the 300-day moving average at 1033. Crossing below that level would be an unequivocal sell to all-cash signal. We have a game plan and we’re going to stick to it…..until the market tells us otherwise. By the way, if you want to follow that game plan in real time, subscribe to Instant Alerts and Recaps.

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

    Good call, but did not get to 1033,

  • Jesse

    it's not popular to see the negative reality of where the markets are and where they are heading. So, as much as I know it pains you, I commend you for cutting through the media lies and posting the truth about where we are. We bounced off 1040, but the trend is down and unless that trend is broken, there is a lot of pressure on this market and the problems are only starting. This is Lehman Brothers, this is the beginning of a sovereign debt crisis.

  • srvcandy2010

    meant to say this is not lehman brothers

  • Jesse

    yes I did mean to say not lehman brothers. thanks

  • Anonymous

    masssssive reverse H&S in three year chart on the SP500 or DJ30. Be nimble w/cash generated in the correction. It's generally safe to ride out the corrections rather than trade them!

  • Anonymous

    observe the charts of the SP500 and the "W" the bears are predicting ahead but it already has happened!!! Look at the 2000-2010 period and it's self-evident. Where it goes from here is up. "…figures don't lie but liers may figure". IOW… it's dangerous to predict patterns, but not predict direction after the pattern has been made.

  • Jesse

    everybody wants to be bullish. people see what they want to see in the charts based on there bias. Sovereign debt issues don't disappear. They're all "to big to fail" so I agree the figures don't lie and the figures are telling us that taxes and rates have to go higher. Unemployment is not getting better like it needs to. The economy is fragile and raising taxes will kill the consumer. but what choice do governments have? pick your poison, but either way it's impossible to make a case for a higher market. The huge moves up and down is not the sign of a healthy market. its the sign of stocks moving to weak hands. looks like 2008 all over again…