Hi Heinz,
Well thoughtout post as always.
>>>>> i have been looking for a post election relief rally myself, but my doubts are now growing...i have a feeling that the sector rotation implies that everybody is ALREADY fully invested...so the question is, where's the money for the rally going to come from? not from margin debt, which remains at an incredibly lofty $250bn per September. not from Europe, as European fund managers are up to their eyeballs in US equities, having bought record amounts this year (the one year notably, when it was better to stay out). not from the NYSE members, who have expanded their balance sheets at an absolutely frantic 32% annual pace this year, and whose trading desks are brimming with inventory(which no doubt gets distributed on the current Dow/NYA rally)....... <<<<<
As you and others know, I really do not concentrate on the fundamentals and often do not even consider them, so Im not the best one to hold a fundamental conversation with.
As to where the money will come from, I too am suspicious that all the money on the sidelines that so many are talking about may not all come back into the U.S.MARKET, especially if the U.S.DOLLAR drops significantly.
This is purely subjective and more based on my chess playing than anything else.gggggg If I was a big fund/firm, my first concern is to not let the NAZ drop below 3000 since it is a huge psychological barrier. So if the NAZ approaches 3000, fortunately with the profits from the recent strong rally in the DOW, I would take those profits and start to throw it into the NAZ. Hopefully other big players will follow suit, since its a good assumption that most of the firms/big players also dont want to see the NAZ drop below 3000. If there is not enough response to my hypothetic inflow of funds, then comes the conspiracy theory and lines of communication will be open with other firms where ACE's in the hole are used.
So once others follow suit, a rally in the NAZ could follow-thru to some degree, but at the expense of the DOW.
Now how long will it last. If significant new funds do not come into the market as you eluded to, eventually this SECTOR ROTATION into the NAZ will stall and sentiment may change to the point of causing outflows of the market. Getting back to the senerio of me being a large fund/firm, once I start to see a stall in the NAZ, I would try to throw it back into the DOW again, but would not be as aggressive this time to attempt to hold the market up this time in order to protect profits. It will become an important issue again, once/if the NAZ approaches 3000, where I would start that strategy again, but I will also realise that eventually that devilish strategy will not work.
As I was typing this note, the DOW is starting to lag the NAZ. |
