Wednesday, July 29, 2009

The Rumors of My Demise...

No, I am not dead. Still hear, still kicking, but have been sitting and waiting, not chasing the run up and not trying to time the top. Instead, waiting for indications that the market is tiring or the market is clearly going higher.

I think we have had a decent signal over the last couple of days that the market is tired. Economists are coming out and saying, while beating earnings is good, top line numbers are not good and the potential for growth is low. We can not have a jobless recovery. Not only that, but the lack of growth in the U.S. will have adverse effects in emerging markets which has been the trendy thing to invest in and talk about.

The U.S. markets have always been the leading indicator of where things are headed in the short term. But perhaps that trend is changing. Last night, China's markets had a big correction. It was not due to the U.S. markets. It was due to China equities being over bought. The market corrected. And I have a feeling the U.S. markets will follow. Perhaps this is a new trend we will begin to see.

The other indicator is the SPX appears to show technical signs that a reversal is coming with a doji cross being formed yesterday. Well, not only that but it got way ahead of its 20 and 50 day ma's. We have to expect the SPX will touch the 20 day ma before it will bounce back and move higher so we are looking at an SPX in the 930 range then we will see what the bounce looks like.

The VIX is showing some strength albeit relative strength. It is still week and indicates that the market is settling down. Even the move up the last few days has been relative small, it is moving closer to its 20 and 50 day ma's which I expect it will pass without much resistance assuming there is a correction in the market.

The market is not only due for a move back, it is fundamentally necessary given the poor top line numbers in the earnings this quarter. Investors are betting on stocks which are showing negative growth but since they are beating the bottom line, I guess it gives them hope. We should see two more quarters of improved bottom line numbers only because last years numbers were so bad. But top line numbers have got to grow in order for stocks to justify their current lofty evaluations given the economic climate.

No comments:

Post a Comment