Thursday, April 23, 2009

Who Has The Wheel?

Imagine a car that has two steering wheels. They used to make this for drivers education but they no longer do. You may find one out there built 10, 15 or 20 years ago, but they no longer make them. They don't make them for a number of reasons, not the least of which is, having two people steering really made no sense.

The same goes for the stock market. Having both sides steering makes little sense. So who is driving right now? For 6 weeks the bulls have obviously held the wheel. But it is hard to say who has it right now.

To me it "feels" like the bears have the wheel. But that is just a gut feeling. Looking at the VIX chart, it is not obvious at all one side or the other has the wheel. The VIX is getting very close to a break out to the upper trend area but I have to see 3 straight days of closing above the 20 dma to be convinced. Right now, it is below that line.

But the compelling chart to me is the SPX chart. if you chart it out with a 20 dma, it is obvious the 20 dma is curving down and heading back down toward the 50 dma. The SPX seldom reverses a down curve of the 20 dma without first crossing the 50 dma. So this alone gives me confidence that the bears seem to have control of the wheel.

A lot of data coming out. I think the housing numbers are going to be much worse than expected. Unemployment will continue to be bad and now some of the healthy companies are now announcing layoffs in anticipation of slowing down and keeping profits up.

It may not be too late to get into short positions of the largest credit card debt holders such as AXP, DFS, BAC and C. VMW is probably too late to get into a short position since it will probably steady at 27.

Too bad their is not a Credit Card ETF. It would be gold right now. Tech has been a big leader in the recent rally so you have to expect there is some pullback. I think the next cyclical to drive the market forward will be energy since it has been neutral for so long. But that won't happen until we hit around 800 and a mini rally occurs.

We are headed to 760 as I have been saying. Still 2 weeks away, but we are headed there.


  1. BD,

    How high do you think the bounce will be at 800?


  2. This morning's UPS earnings and forecast (no recovery until 4Q 2009 or early 2010) confirm negative facts vs. CNBC hype.

  3. Didn't you hear Ian?

    According to Grasso, the turd that Morgan Stanley floated the other day was apparently good news.

    Apple beat estimates (as they always do because of low ball guidance) on increased Iphone/pod, macbook sales. Whats the backdrop for this consumer spending? A substantial increase in credit card losses.

    If/when this market retests the lows or sets new lows, even if it is another 6 months out, I hope all the hyping comes back to bite CNBC in the ass. They've become the least credible source in business news and I have to assume that viewership falls off a cliff when the market pukes again.

  4. SRS, the bounce off of 800 is hard to say and I leave that to the TA guys drawing up the trend lines. We should see a steady zig zag and somewhere along the way, a larger bounce will likely occur and i am guessing around 800 which is the halfway point between our current level and 760. It is mostly an educated guess at this point.

  5. Justin, the entire market is not bad and tech is proving that they are somewhat recession proof. Part of this is due to companies looking to save money and they know that tech saves them money, sometimes at the cost of jobs. In 2000, tech claimed to be money saving but companies were not quite ready to commit to it so tech fizzled. Not today. Tech is the place to be to avoid huge losses in the market and is probably going to be the leader at the end of this recession. So don'g fight tech and don't fight the fed.

    That said, there are some hidden gems in tech that are simply overpriced and are great short opportunities. Like VMW yesterday. I have told you all VMW was going to disappoint. Unfortunately, I have been saying it for 3 weeks and during those 3 weeks, VMW went up about 40%. Everyone thought VMW is the future but you have to convert that into earnings and VMW just got way ahead of itself, much like the 2000 tech bubble.

    I am searching for that next gem today