Click chart to enlarge The chart above shows the S&P500 index (SPY) as of the close Friday. It broke and closed above both its 75dma and its 100dma. It's truly at an inflection point because the break is not yet decisive. If the market sells off from here, this will just look like another rejection at the 75dma like all the rest, despite exceeding it by a bit. It's uncanny how precisely it turned around the last 4 times when it reached the 75dma.
We believe that the market will move higher from here, but it all depends on the next session or two. If we have another big up day, then the market will have changed sentiment in a big way. In that case, we could make a run for the 200dma at Dow 9400, S&P 1000. Of course if we did actually get to the 200dma, it would be a little lower by then. The 200dma is the dividing line between bull and bear market. If we did get that far, we would have a very tough time breaking it. We would probably be rejected at that line 3 or 4 times.
We continue to be convinced that the market has bottomed and that the economy is showing signs of life that will hit Main Street in 9 to 12 months. This does not rule out a drop back to Dow 6500-7000, but it would be a gift. Our prediction for the long term is that the market will go sideways between 7000 and 9000 as it consolidates these recent great losses and puts in a solid base from which to launch the next bull market. This consolidation could take anywhere from 1 to 3 years. We believe that the 10 - 20 year consolidations of the past are not applicable today. Everything happens in a very compressed time frame today, although the basic principles haven't changed. We'd be very suprised if the next great, sustained bull market begins any later than 3 years from now.
12 comments:
China, the Shanghai exchange is already in bull market. The Bovespa (Brazil) and the KOSPI (Korea) are very close to that point, too.
SRS and SKF crushed. I would imagine all of these ultra funds have lost all momentum. It will be interesting to see if the SPY can break the MAs.
Ahh, agreed. Ultra ETF's are very dangerous. Holding a small amount of them as a hedge is ok, but trading them alone is dangerous because their value deteriorates. You can be right, and still lose money. Look at the charts FXI and FXP. FXP broke down in October/November, and has only gone down since. FXI is no higher now than it was in Oct/Nov. So as China's market basically went sideways, FXP fell 70%-80% or so. It looks like the other Ultrashorts have broken down similar to FXP's breakdown. At this point, the market no longer has to go higher to make them drop. It can just go sideways in a pretty broad range and they'll continue deteriorate in value. They make excellent shorts as long as you can tolerate the occassional spikes.
Based on the Weinstein book I can see some good buying opportunity for longterm in the tech sector. Q above 4 with high volume, QCOM but it's a bit risky, because the volume was light when it has broken out, the same is true for IBM and VZ, maybe S, T above 28, AMD is close to this point, NVDA low volume, and so on.
For a Gary the chimp short, how about a newspaper -- one that still relies much on print?
snot, i would really appreciate if you would continue your realestate comments about what you are seeing in the market, possibly weekly as an aside on your title blog posts.
i am seeing an enormous crash in prices here in DC. my house is worth 1/2 it's 2005 value. the selling pressure here has some houses priced almost 2/3s below what they would have fetched at the peak. i am thinking this can only continue, until prices are well below even 1998 prices, before the bubble even started, this due to the terrible employment situation.
i am in the process of selling my house, and am having to face the reality of competing house prices. instead of buying another house, i think renting for a few years may be the only realistic safe option. if banks really have 700,000 houses they have foreclosed upon that they are just sitting on, how can the situation be expected to improve? do you have any good statistics in this regard?
now this is a personal situation, but to make it pertainent, SRS is selling for $38 right now. is this a mirage? who on earth thinks we are out of the woods in realty? SRS would seem to be a screaming buy right here. again, your comments are very important to me. thanks, 888888s
88888's,
2/3rds sounds more realistic than half. They were too pricey in 2005 and they're too cheap now. Somewhere between the 2005 price and the current price is the real value of your home. Don't sell it below that if you can avoid it. This is really a mark-to-market accounting question. Right now, there is no market for you. There is only a market for people who are forced to sell at firesale prices because they're being comped with foreclosures. This is not representative of the value of your home. If you were to go through the exercise of adding up the material and labor cost, i.e., the replacement value of your home, it would paint a very different picture of its real value. The banks are having the same problem, their assets are being comped with foreclosures.
Houses in NY are not down nearly 50%. A house selling for $750k in 2005 is listed for $500k now. That's 2/3rds, like you said. The replacement value of the house, if built from scratch, is around $650k to $700k. Not sure how it is in D.C., but in NY people simply aren't selling. A local realtor told us that he used to sell 16 units a month, and now he's sold that many in the past year. They say it's a buyers market, but try buying something. You'll see that people aren't willing to part with their houses at the same prices the foreclosures are selling for. They say that something is only worth what someone is willing to pay for it. But if someone isn't willing to sell it, then that equation changes. Hold onto your real estate if you can.
SRS is a whole different thing. We don't trust inverse ETF's as anything more than just a hedge. Once they break down, they are never the same again. SRS may have little rallies here and there, but the major trend is that it's going to continue to slowly deteriorate. For it to rally strongly as it did in the past, real estate prices would have to take another big hit. That's not going to happen. People are already not willing to sell now. They're standing their ground at current prices, so where is this next big drop coming from?
Instead, we see activity picking up in the local real estate market, and it's speculative, which means that prices are going to start going up. That is, if these speculators are correct that we're at a bottom. These are former Wall Streeters who see real estate as a more lucrative and stable investment than stocks/commodities. They're extremely bright people, and our bet is that their instincts are correct. Keep in mind, the stock market, including SRS, is at least 6 months ahead of what it represents.
8888's,
Thought you meant houses were worth 2/3rd's of what they were in 2005, not that they were 2/3rd's less expensive.
Is it true that they're down 67% there? That sounds very unrealistic, and is certainly not true in NY. We're down about 1/3rd.
i just did a quick survey of 20 home prices in my neighborhood, listed for sale. median sale price now is 144K, down from average of 300k in 2005. i hear you about holding on, but if i buy another house immediate upon sale, it should be apples to apples, as we are all in the same boat. this is a useful discussion, thanks, 88888s
Stated on the "12 Month Chart" thread, March 23, 2009 8:00 PM: "my target for IYR. That's going to be 29.30. SRS should be around 43 or 44, but I'm just going to use a trade trigger to buy it."
Look where IYR closed at last friday, 11 days after I made the call. Exactly on target. I made a plan, laid it out here, used trade triggers, and actually got in at a price significantly lower than the 43 I was planning on. I was underwater from playing around at the 50dma, but the big trade was this, and once again it was planned well in advance.
Do I know if it is going higher? Not really. All I know is I found a price level that I knew would create a tradeable bounce, and I'm playing that bounce. By the time we come out of this trading area, I will already have most of my money out, so it really does not matter where we go from here. But as I said above I am starting a longer term position in SRS, because I think we're at the top. But that is a different sort of game and its not as easy to call.
I have no problem believing SRS is a good buy here. I said a couple weeks ago that I expected it to be whipsawed down into the low 40s and that is what happened. It's been beaten down even worse than I figured, but I'm willing to bet that it is near the bottom of its cycle. Same goes for SKF. This is a bear market rally, fueled by the Fed printing press. It was easy to predict this rally, using 2nd grade math. It takes a 2nd grader to tell you the money isnt real, it is fiat and it comes out of our own pocket. The 22% gains therefore were in large part an illusion. We are at a point where the cyclical gain from SRS/SKF should be greater than the attrition loss. In other words, even if it goes lower from here, it is not going to go low enough to where it will never get to this level again. I'm in 25% on SRS/FAZ/SKF. I have no long positions.
Snot, MOS missed. Down in premarket. Will POT, AGU, et. al. likely follow suit? Ag is still "no go" for now?
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