Hmm...stocks appear to be decoupling from bonds, and news have been coming out on how some portfolio managers are worried over a slowdown. They are blaming Asia for this.
There were signs that the economy was slowing down several quarters ago and firm evidence two quarters ago, and now some people are starting to wake up. I do not think Asia can be blamed for all of this. For instance with Intel, there was a simple lack of demand even in the North American continent. What is very curious is that I suspect the market will react negatively to this news as time goes on, where in the near past they would of welcomed such news over their fears of an "overheating" economy. Shows the market never did understand what it was looking for. It was confused and still is.
Perhaps once the "reality" sets in of slowing economic growth, and this has been priced into the market, then there will be an opportunity for higher prices. But IMO the market will remain overvalued until this bull market is over. I think the market only in transitory periods responds to the fundamental terrain of the companies of the stocks they trade. This is different than news events of a fundamental nature which the market reacts to. The market does and always will have a tenuous grasp of the reality of the fundamental picture.
Besides the decoupling of bonds, there is this pervasive negative sentiment being demonstrated by today's market. However, IMO as long as the funds do not add to their cash position and continue to rotate funds obtained from the sale of stocks directly into other stocks, like the defensive group, of stock on the DJIA and S&P 500, then the market will not see a significant correction. Much of this depends on fund redemptions by the public remaining small. Othewise, the funds will be caught in an illiquid position which can lead to a forced selloff of their stock to raise cash. If this happens, then I think a significant market correction is possible. This is my primary concern that can invalidate the longer term trend and can place us into an intermediate term bear market that can have us see at least the 200 day MAs. At this point, I would see the long term bull trend would still be in place until invalidated.
During this rotational period that started several weeks ago, and the way the market has moved into a distribution period, I would think the funds have built a larger cash position by now. But we have seen them eagerly rotating directly into stock purchases. I wonder how much of a cash position the funds actually have? Or have the funds been moving most of their money obtained from liquidating stock back into the stock market?
Comments and feedback welcome.
Bob Graham |
