Wednesday, April 29, 2009


It's what a good Army Field General would do. Retreat, regroup and wait for a better day. Today's show of strength against really poor GDP data can only be described as... scary. I have been looking forward to this GDP number because I had to believe we were going to be around -6% which would validate Q4 data which many said was a one-off. But despite the validation, the media and many analysts chose to focus on the 2.2% increase in consumer spending.

So how did they take this number and make it sound so strong? They compared it to last quarter which was 1.1% gain. And they took the 2.2% number relative to 1.1% and claimed that consumer spending growth doubled from the last quarter. Now that sounds huge. Doubled.

It is the media hype that is being created and I have to believe this is being directed by the gov't for the media to focus on good news in order to create optimism in the market. We know the gov't is controlling CNBC via GE. But it appears the rest of the mainstream media is joining in.

"Consumer Spending Growth Doubles", "Market Soars on Much Strong than Expected Consumer Spending". Those are powerful headlines. But did Consumer Spending really grow? Considering this year was a record year in tax returns and that consumer spending was so far down over the past 4-6 months, consumers had to spend something for basic necessities, including cars, new appliances, etc. and the impetus for the spending was most likely their tax returns.

I believe it is a one-off but we won't know until Q2 GDP comes out. In the mean time, this market is not showing confirmation of a reversal. dips are being bought and the weaker hand is clearly the bears.

So if you are trying to time the top, I certainly would not back up the truck here, nor would I double up. I nearly got stopped out on a couple of my positions, barely missing by pennies. In retrospect, it probably would not have been bad to get stopped out. But I do have opportunity to make a move if needed in the morning to create more protection.

The market is in dangerous territory for bears. It is at a key resistance level and todays action seemed to suggest if any real good news were to come out, the market could blow past 880 and to 900. So, I recommend caution.

At the same time, the market is obviously overbought. So technically it should go down from here. The average stock in the S&P is priced at 22x forward earnings. That is much higher than the normal 6x to 10x forward earnings. The market will eventually correct but right now it is being pumped.

Indicators I am looking for as indicators that the down leg is here is 2 straight days of solid down days on good volume. Also, a close below the 20 day MA, which is currently just below 850. So it won't take much but I am going to be cautious until we see those signals.

If you feel the need to be long, I recommend EEM for sure. TBT has had a good run but is likely to fall back a bit. Energy and healthcare are the only industries I think may be undervalued relative to their forward looking P/E.


  1. Did the bear market rally end at 12.15ET ?

    While praising JPM and Chysler Mgt, Pres. Obama politely but effectively told the Chrysler creditor hedge fund whores: 'F*** YOU! We'll do it without you.'

    Meanwhile, hedge fund concubine Maria B. whines about "class warfare."

  2. "Did the bear market rally end at 12:15 ET" - that's my take.

    Next issue is to target where it goes, does it get support at about 790. (Backstopped against today's highs of course.)

  3. Don't assume the bear market rally is over. There are key indicators to let us know when it is truly over. It is definitely over when the 20 day MA crosses the 50 day MA. It is likely over when we close below the 20 day MA. But the first signal it may be over is when we have two down days with decent volume which signifies the bulls are weak and are pulling out.

    Until then, we are still in the bear market rally