. . . . . . . . . . . . . . ===== The Subjective View =====. . . . .
Well, once again hindsight is clearer than foresight. Rallys in or out of the FOMC meeting were expected by too many trader/investors. Positions were taken accordingly. . . and the brief strength ahead of the meeting was mostly short-covering, much as we discussed. Only without the Fund Managers pushing in some of that sidelined money, short-covering never graduates into a real rally.
From a purely Subjective view, surprises do move the markets. Greenspan did what the markets expected. No surprise one way or another. Fear, doubt and uncertainty have been moving the markets for many months now. Short-sellers place a stronghold on the markets as often as possible. Confidence and hope are what drive markets forward, apparently not the mere absence of fear, doubt and uncertainty.
What we have currently is decreasing uncertainty as to how the FED will handle 2001. Increasing confidence that they are committed to pulling us out. But lingering fear that they acted to late and that we are headed into a recession or one depth or another.
What we need to drive markets forward is the hope that we could pull out of this with only the slightest recession. And we need the confidence that tech stocks earnings will not continue to decrease, but have bottomed and are on the rebound. Or we could just get a nice dose of liquidity from the FED and pull these markets higher regardless of consumer/investor/trader sentiment.
I wish I could say the end was clearly in sight. But it "feels" as though the Fund Managers and Individual Investors are not only afraid to place their bets, having been burned so many times. . . but there are simply fewer numbers of both and the juice is FAR smaller than in days past. It likewise feels that the Hedge Fund Managers, Large Brokerages and Market Makers whos job it is to play against the first group, have enjoyed such a long-standing short-rally and have grown in size and especially in juice, that they simply have NO FEAR of holding short positions.
They have created an immovable log-jam that will not allow these tech markets to pass and begin making new highs. There is increasing amounts of short-sell monies placing far larger positions than they were able to just a few months ago. And this domination will take some serious dynamite to bust it away, so that the river may continue to flow. Greenspan's surprise rate cut was explosive enough. The big question here. . .What future surprises may bust this logjam?
But before allowing all this to upset you, consider that the current short-sellers log jam is much the same as the one created by Individuals and Fund Managers just a few years ago, who bid up emerging tech stocks and dot coms without regard for valuations, thus creating a logjam of similar proportions. It finally took a half-point rate hike and the draining of liquidity to bust this jam.
It appears that the answer to our current dilemma may be the very same, only upside down. . . Sharp rate cuts and the adding of liquidity. But just as the Dotcom logjam took 10 months to take full effect, I suspect that this current logjam may also take considerable time to break up.
Assuming no surprises that could break the markets higher, we could be looking at recovery that lasts at least the rest of the year and into the first quarter of 2002. If we do not get a February into March rally here, I fear that the groundhog may have seen more than his shadow.
The sight of a few really fat bears would be reason enough to skip right over this summer and hibernate straight thru until next year. So until Alan Greenspan dons his Elmer Fudd hat and takes his daddys 10 gauge Charles Daly side-by-side from the wall of his study and goes hunting for fat bear, we may be in for an extremely slow recovery.
We knew that the Po' Boys would not allow Individuals to regain their confidence and control. We weren't sure how well they would be able to pull it off. Apparently, they are expert manipulators, capable of fending off whatever exuberance comes their way.
My advice since last Spring has not changed. Learn to play BOTH sides of the ball. We NEED to short-sell, if for nothing else than as a hedge to our longs. Options, covered calls, etc. work in a similar fashion, though the learning curve is a bit steep. The education in learning these hedge plays is time well spent. Purely buying and holding any of the volatile tech names will lead to growing frustration [as if it could get worse], perhaps LONG BEFORE it leads to significant gains. Holding the microcaps requires an iron stomach, though it has paid off for traders. But SWING trading this market in BOTH directions is, IMO, STILL the key to keeping your portfolio healthy and your outlook positive.
This is NOT new. We began short-selling on the HOME thread regularly back in the Spring of 2000, when we were planning various Summertime strategies to resist from playing techs long.
Some quips about playing both sides. . .
April 8, 2000: "...part of our strategy for the selloff is to short-sell techs and/or QQQ. . . . . this strategy will hold up well if it all deepens and turns really ugly. " Message 13380522
April 28, 2000:We cannot limit ourselves to a single trading style anymore. Value investors need some tech. Tech investors need some value. Long-term investors and position traders need some momentum trades. Momentum traders need some buy and holds. Everyone needs to short-sell the market now and then. . or at least the QQQ. And everyone needs to learn to both read the markets and time the markets. Finally, we all need to learn to ignore the pundits.
This is the formula to success in this new volatile stock market, in my opinion.
http://www.siliconinvestor.com/readmsg.aspx?msgid=13521579
September 1, 2000: The biggest recent winners are my biggest short-holdings... Message 14317767
Yes, you can win on both sides of the ball. But beware that short-selling carries the risk of "no limit to potential losses", due to a stock being able to rise an unlimited amount.
Like I said back in December. .
1998 was the year of the Dot Com.
1999 was the year of the Tech Stock Bubble.
2000 was the year of the Bursting of the Bubble.
2001 will be the year of "Controlled Growth
[NOTE: For further views of 2001, read this post: Message 15097780 . . . and somebody may want to calculate January's top 5 burst days to check how close that prediction was]
It looks like we will have the final day of a 4DML on Monday. We could see a short-covering pop then. But it is important to note that I am not expecting these markets to "run away" unabated any time soon. The Fat Bears are not giving up without a fight. Irrational exuberance is long from returning. So we should all make the best of the market we are given, and learn to trade whatever ways work best. And from my perspective, the answer is BOTH ways.
Rande Is |
