Good morning ! Another trading day has arrived. Following is how I assess today's trading environment:
Asia did terrible again last night. However, the markets were thrown a bone by HK being up almost 2% and Japan only being down a little under 1%. S. Korea, however, continues to do absolutely terrible its currency dropping 7% and its currency dropping 10%, or limit down for one day. S. Korea is said to need about double the record IMF money promised to them. Korean banks have loans in US Dollars which can't be paid and won't be refinanced until foreigners feel more sure about Korea's outlook. Analysts say $ 100 billion will be needed to regain some type of confidence in Korea's economy. This is way, way more than more that has ever been given to help a country.
So why is the s&p ralleying this morning? First, there is a lot of money waiting to be invested . . . and where will you put that money? The US is doing much better than all the other major econonomies in the world, so the world wants to buy either US stocks or US bonds- not to mention the US baby-boomers putting their cash into retirement accounts investing in, yes, US stocks.
The second reason the market is ralleying is technical. The market has sold off heavily (well, for this market). Now the bad news has to be worse and worse to give the bears the advantage. The bulls will be looking to buy for any reason. The reason to buy? Japan and HK weren't crushed last night. The s&p futures lead the european counties (France, UK, Germany) up this morning.
So their is still great reason to be short this morning, but you are risking getting in the way of a technical ralley (the market just had a big down wave so it is due for an upwave). At this time, the March s&p is up 4.70pst to 970.20b 970.50 ask. How much can this market wave up? Well, their is a lot of cash waiting to jump back in. Emotions could ride this market up very fast. On the other hand, the experienced money managers know this market is richly valued, but will/must invest if this market shows any strength (anyone who hasn't been long for the last 15 years, has been a loser. To keep their jobs they've got to do as well as everyone else. If this is a false drop, managers won't want to miss it).
I might also add (there are so many angles) that you might even say that fundamentally the market outlook is bullish because of all the money available to invest. That is actually the long-term view I take (it didn't sound that way did it?). Until the baby-boomers, etc, stop putting so much money into the market, this market will have a hard time falling, even when it should (like now). How much money is really out there? Is there really that much money? It appears that way. Also, January usually sees a lot of new money coming into the market. Fund managers know this so they won't want to be late coming to the party (on the otherhand, they know asia could get much worse. Did I mention that Japan's economy is still slowing? Did I mention DEFLATION fears. Deflation looks like its coming. Alan Greenspan fears that if the US markets fall significantly that that will trigger deflation here. Afterall, the biggest inflation in the US has been in US equities !).
So what is one to do? I might feel out a short-term top by going short as soon as the market has an emotional fit upward (or is this it alreay) and rises a good amount of points. However, with the weekend coming up, I don't think a ralley much over 100 pts (dow) will hold up, so that might be a perfect time to short. On the other hand, we may not even reach 100 (it looks like the dow could open 80 pts higher right now) so if the s&p rallies much more I would be tempted to short it (as longg as the foreign markets don't continue to ralley. If they continued, I would sell it. If they fell, I might short).
I wouldn't go long, but who knows. The news in asia is still bad and mounting. Every time a fund buys at higher prices, he is taking a bigger risk than he was the day before at the same prices because every day more news comes out on asia. The bigger risk means the markets could become more volitile. The asian market indexes are all near support. They are right on the line that they shouldn't falll under for pshycological reasons. If those lines break (Japan's actually broke last night but only slightly), the ante will be upped even more.
I'd say today might be a good day to ignore, but we'll watch it, of course ! Fundamentals say down. Emotions, short-term, say buy ! Technically, a ralley is most likely (even if short-term as we've already experienced). However, I would be very tempted to short on any big ralley which brings the techs up nicley.
Well, these are some of my thoughts on the market today.
Note: There are many variables. I could reverse my tone anytime to a more bullish outlook, etc. Perhaps I should say this is the information/reasons why I FEEL bearish fundamentally, but not bearish enough technically to risk any money - then again, I might change my mind and go short in the next minute !
Regards,
VALUESPEC |
