OT: Have a friend of a friend who's a hedge fund mgr
Here's the email that was forwarded to me tonight (these are comments/updates distributed to the limited partners)...
COMMENT: We're Fixing to Move Up Not Down (05/04)
I hadn't abandoned ya over the last several days, just a bit under the weather and nothing has essentially changed since I last wrote. Until now.
My last piece said the NASDAQ would come down some before moving back up. I wasn't exact on the timing, but it unfolded that way so far. Now it's time for an update.
It goes to reasoning that when CNBC parades Barton Biggs (the dumbshut preverbal bear who has been wrong for nearly five years running) on camera this afternoon -- the selling has to be close to an end.
The sentiment has grown to somewhere between cautious to bearish. All day long were bombarded with 'anal-ysts' telling us the market's going down hard. Mainly because of FED rate hike fears.
Now that really makes a lot of sense (not), because the same information was available when the market has run UP for 1,000's of points. Duh!!
As measured on the SPX (S&P 500) we went down nearly 200 points (hint: das big) two weeks ago in a four day splat that tested 1350 SPX. Then with NOTHING changed in the market place or economy, we gained 75% of those losses back in a week of trading. Since then we have retraced (given back) half the last run.
I regularly read (but don't swear by) four technical analysts who I have respect for. All of them are now saying, this evening, the markets -- Dow, SP, Nas -- are going to come down hard as the next move. It seems they are calling for a technical cycle low (at least lower than here) going into mid-May.
Not in spite of them, but I disagree.
Here's the source of my disagreement . . .
1. Technical analysis is a wonderful work of art. And when the tape proves the TA guys wrong, they simply publish a new analysis that includes what happens next considering the new action. Specifically . . . they can be wrong and in fact are at times. Also, this is not a major cycle turn -- just a short term one.
2. Sentiment is as fickle as TA. It can and does change on a dime. If the past several weeks has demonstrated nothing else it has given a new meaning to flipping directions and volatility on no specific catalyst. There has been no damage to the will or resources of the 'buy-the-dippers' who can swing sentiment positive in the space of 30 minutes.
3. One thing I agree with from CNBC commentators, we are going thru a 'buyers strike' for the past few days. Meaning, the program traders are having their way to the downside because there is very little buying to offset the challenge. And as we've repeatedly seen this year, the market can and does roar back up as the professionals cannot afford to miss the next run when the buyers come back to the tape.
4. A lot of the fuel for each explosive move upward has been a combination of not wanting to miss a several hundred point move, combined with massive short covering -- which makes for great moves in a few days.
5. The VIX (an indicator of market direction based on puts/calls on the OEX) has been very reliable so far this year. Specifically, each time it has approached or exceeded 30 it reverses itself downward quickly. Over 30 means the market is getting oversold, and will go back up. It's sitting at 35.5 this evening.
6. OBV, OnBalance Volume, is a trailing indicator. What it measures is the whether the net volume in a stock is generally going up or down. When we see major stocks like CSCO, AMAT, INTC, EMC, SUNW, HWP ease down in price on lowering daily volume (which we have over the past few days) -- yet the OBV is INCREASING simultaneously -- something is amiss. Typically this means the small traders are selling the stocks and the bigger players are beginning to buy the stocks incrementally. The big folks are beginning to ease into the positions already.
7. Critical support levels on the markets are considered to be DOW 10,400 (closed 10,412), NASDAQ 3600 (closed 3720) and SPX 1400 (closed 1409). Those are scarily close to their technical support levels. But there's nothing at all magical about breaking thru those intraday -- happens all the time. And if the market turns UP, not down, then we'll have more technical support and resistance levels. It's a continuous process.
8. So far this week it has been predominately a news driven market. First we had a (no big surprise) severe warning from AT&T. Then we had Goldman Sachs come out and poop all over the retail sector. Followed by an unexpected warning from NOVL and vicious rumors of CSCO having profit margin problems. All in synch with a constant barrage from the bears on interest rate dialog on the tube The affect has been to come down on Tues and Wed, but today we ended positive on the NASDAQ. The bears are running out of crap to throw at the tape. And intraday, most of the sell programs are being counter balanced by buy programs on the indices.
9. Oh yeah, and let's not forget that the econ numbers last and this week were certainly supposed to send us down to retest this year's lows. First it was the consumer confidence (didn't do it), then housing starts (didn't do it), then Productivity declines (didn't do it), weekly jobless report (didn't do it) and labor costs (didn't do it). By 'didn't do it' I mean the report didn't have a sustained negative impact on the tape when announced.
10. But wait, we have the monster Unemployment Report Friday morning. Surely that will give the bears the ammunition needed to sink the tape in a massive sell-off. No doubt it could, but it's more likely that the CNBC effect has left the report as a no impacter. Why?? Because by talking about it for a week, they have literally recast the expectations for the street. And unless it is horrendously negative (inflationary), the market is likely to rally in relief or in spite of it.
11. As for Dr Greenspan and crew, the FOMC has shown their resolve to incrementally raise rates over time and not spank the market without major justification. Sure, they could raise by 50 basis points instead of the normal 25, but that hasn't been their pattern. And if CNBC keeps yaking endlessly about a 50 raise, that will already be factored into the tape also. The mantra 'don't fight the FED' has been toothless since last October as the tape literally rocked as the FED raised rates continuously.
12. Seasonally, there used to be a pattern which would put us in a slow downward trend after mid-April or early May. But if ya look closely at this year's trends, they have NOT followed the pattern at all seasonally. If that continues (to be generally opposite the norm) we can anticipate a strong run from May into summer.
13. This last point is one I have the most problem with. It's tricky. We are 90% done with this cycle's earning's reports. Normally, that takes away a primary catalyst to run the tape up. But this market lately has been anything but 'normal'. As we have seen time and again the market does the opposite of which most expect. So if most expect a downturn, it could surprise the masses yet again. If for no other reason than to reflect just how strong this past quarter's earnings actually were.
Now let's be very clear. Anyone, myself included, could take any and all of these 13 points and make a defendable argument to justify a sell-off as the next move. No one, absolutely no one knows with certainty what will happen next.
Those are my thoughts and rationale. And as always, if they are wrong, we will adjust accordingly and short the hell outta the market.
DISCLOSURE: But for now, I have closed my tech put positions and am long some of the stronger B2B stocks, as well as AMAT and NOK. For the past few days some of which have actually gone up on a bounce in a still numerically negative tape.
I expect the Unemployment Report to be benign at worst and the market to have a quick recovery rally for a few days. After that, we'll have to take the temperature of the market again. |
