Sunday, April 12, 2009

Three On One Isn't Fair

For bears, this is a tough market to navigate. They know the economy is worse off than the media is portraying. They know earnings by banks are cooked. They know the government spending is going to bite us in the long run.

But the bulls, via the media, have created optimism. Optimism, when spread, is a force to be reckoned with and should not be taken lightly.

I believe a bubble is forming due to this false optimism based on government changing the rules in the middle of the game. The Fed, under Bernanke, are doing all they can and they should be commended. It comes with a lot of risk and it is very uncertain what it will do in the long run. In the short term though, it creates a facade of stability.

The Treasury is also doing all they can but at the cost of the tax payer in so many ways. It if succeeds, the tax payer will forgive and forget. If it fails, the backlash will be tremendous.

The bears are fighting 3 battles at once. The Fed, the Treasury and the tape. That is very difficult to win especially for financials. You really have to let this trend run its course in the financials. Many of the charts on the banks have the 20 day MA crossing the 50 day MA. That is a bullish indicator but does not tell you how long it will last. It is better to wait for the 20 and 50 day MA's converge a bit before trying to short financials again.

But earnings will dictate the market for these next two weeks. Remember, sentiment is positive so good earnings will cause big moves up, mediocre earnings will cause up movement, and negative news may be ignored unless it is really bad.

With the markets recent run, I don't see any need to make a stand in either direction right now. Especially in financials. Right now, cash is king. Betting heavy in one direction or the other is just gambling. We have to wait to see what the banks show this week. My feeling is at least 2 of the 3 major banks will show problems. WFC pre-announced because they had good earnings. If the others had the same, why didn't they pre-announce. But I can't bet on it.

AAI will have news this week but it will not be as major as I was expecting. I will wait to see how the market reacts before making a move or not.

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