Jotted down a few thoughts running through a very confused mind lately FWIW. All best taken with a grain. They are just some thoughts.
I was speaking with a friend in Government today who has her entire Government pension in the Common stock fund that tracks the S and P 500. A week ago she stated to me, don't sell, this is the opportunity of a lifetime. Today as she watched the screen in amazement she said to me, " The stock market is never going back up again ". I laughed to myself at the mood swing because we all know that's not true. The stock market will go back up again at some point. But at the same time I felt a streak of frustration, knowing that retirement is around the corner for her.
This is one of the most adverse periods we have ever been thru in the stock market since I have been managing some funds in early 2004. It's the 2002 decline into an October low all over again. Even our extreme caution, overweighted cash positions, and limited number of stock positions hasn't helped us. Constellation prizes like " It could be much worse" don't cut the mustard. When you only own a few stocks and your 75% cash or more, and your still getting creamed, something is wrong with the market. I believe in large part the culprit is the 4 year presidential cycle. 2002 was also a 2nd year term in the cycle and the S and P 500 declined 32% that year from March to October. Since 1934, the average decline for the S and P 500 has been 20% during the 2nd term of a presidential cycle. The S and P 500 is down approximately 7% from its May high. That leaves alot of downside room. Many don't believe and cycles, however history evidences otherwise and its becoming a self fulfilling prophecy. There is an old saying that history has a way of repeating itself. Adding up all the other negatives like a rising interest rate environment, a condo bust in Florida and San Diego, Wars on all fronts, high energy prices, a baby boom generation entitlement binge the world has never seen, and disappointing earnings so far from the big names like GE, AMD, and others, I fear the stock market is in serious trouble. The wall of worry is to steep for the stock market to climb as it sometimes is able to in an amicable environment. The Jerusalem Post today features an Iranian Muslim woman draped in black garb dress and veil carrying a large sign "Get ready for the real Holocaust".
For most its back to square 1 on 2006 . For many others its back even farther. All of the indexes are now in primary downtrends. Great stocks, great Companies, great analysis, great earnings growth, great values, none of it matters in this environment. Stocks want to go lower and they will. Composure, and patience is required. I believe we will get a large year end rally to make us happy again. But bottom fishing now doesn't appear wise. Any nibbles we try turn down. Any shorts we try are prone to scary whipsaws on any given day. Losers swamped gainers today 2.3 to 1. Yesterday it was 5 to 1. The highest volume stocks were negative 2.4 to 1 today and by better than 3 to 1 on Thursday. Advance/decline volume was negative by a wide margin this week and the S and P 500 got hit for 50 points from high to low.
finance.yahoo.com
New 52 week lows accelerated all week, and today there were 10 new 52 week lows on the New York Exchange for every one 52 week high. It's not something to ingnore. Our breakdown scan was negative every single day this week, even on feeble Tuesday. The total number of stocks within 15% of their all time highs contracted by 17% this week. Richard Russell's primary trend index has been below its steeply declining 89 day moving average since June 6th. Lowry's technical service, one with a large institutional client base shows the supply equation for stocks at a a multi year high and the demand at a multi year low. There were 8 Hemscott Industry groups registering mild gains on the week while there were 231 industry groups lower. I believe its a time for caution at a minimum.
Last week I felt that traders and investors will have trouble if they are unwilling to adjust their strong convictions should the market say otherwise. So far the market has not said otherwise on energy or gold "but all options are open". The most likely option is Condi on the phone to do some begging. For the most part, there is no fighting a primary downtrend. Its an almost all or nothing market every day. Either they all go down, or they all have a bounce. But mostly, they all go down. Not a market to try and outguess. On a brighter note we have the cash to capitalize once the market's fit is confirmed over. Its definitely not done going down. Bright minds in finance may be able to orchestrate a bounce with some work over the weekend while the VIX is 20% above its 10 day moving average and the CBOE total put/call ratio has been extreme all week, now at 1.23. If they can orchestrate a short tem bounce, the bounce will fail. If the market fails to hold the 1220 on the S and P we could be headed south right thru October in an intermittent choppy decline. So they might meander down here a while and set up for a cautiously playable bounce in August. Gut feel is that the real lows come in the fall despite any interim rally that might materialize. We know how fast gains can be racked up in a good bull move from a point where stocks become extremely undervalued. This too shall pass. |
