April 15, 2009
The market indices rose strongly in the last hour of trading today. The
added a paltry
to end the day at 1,627;
the Dow tacked on a more robust 109.44 points (1.38%)
to close above 8,000 at 8,030;
and the S&P 500 gained 10.56
points (1.25%) to 852.
Oil and gold remained essentially unchanged at $49.76 and $893.50,
respectively. The VIX fell 1.5 to 36.17.
The U. S. economy is still contracting: U.S. economy still contracting.
Industrial output fell the most since World War II: Industrial output falls most since WWII...
down 13.3% since the recession began, and down 12.8% over the past
The core consumer price index, excluding groceries and
energy, rose about 0.2% (1.8% a year).
(1) It's clear that a lot of money is betting that
the worst is behind us, and that the March 6th low represented the low for
this multi-year market cycle. At the same time, there are reasons to think
that they're as wrong as they were when they bid to stock market up to a
new high in October, 2007, just before the market began its swan
(2) The current U. S. market stampede is slowing, and short-term, is
ripe for a significant pullback and retest.
(3) By contrast, unlike the U. S. indices, the Chinese FXI
ETF (see below), which bottomed at $19.42 on October 27, 2008,
successfully retested, on November 29, 2008, its October 27th low and has
now risen to close at $33.09 a share today. That represents a
$33.09/$19.42 = 1.70... a 70% rise from its low! So it's time to buy
(4) If FXI returned to its 2007 high of about $66 a share (after
adjusting for dividends), it would double from tonight's close of $33.09 a
Another, leveraged way to invest in FXI would be to buy
the January 22, 2011, $15 call -VHFAO. It closed today at $18.10 bid,
$18.60 asked. You could probably buy it for $18.10 bid or less the next
time FXI has a bad hair day, although as the chart shows, FXI is rising
rapidly. This would allow you to more than triple your present investment.
If you buy this LEAP (Long-Term Equity Anticipation)
call "at the market", you'll pay $18.60 for it, which isn't a
bad deal for a $33.09 ETF. In a way, you'd be paying a 51¢ premium per share, or
"rental fee" ($15 + $18.60 = $33.60) to "own" these $33.09 shares
of FXI until January, 2009, for $18.60 a share. However, if you sell your
call anytime soon, you can recoup your 51¢ premium. But this needs a
better explanation and some examples for anyone who's not comfortably
familiar with call options and how they work.
I'll try to write more about this tomorrow morning.
Todd Harrison shared in January
and reiterated in early March
that we would see two 25% rallies this year. Today, he writes, "The
question, I suppose, is whether they're stacked back-to-back in the front
half of the year or interrupted by a harsh downside comeuppance. Given the
breakout in the banks
(above BKX 32.5), we must respect the potential for the S&P
to follow through to the upside, potentially driving the tape towards the
200-day moving average (currently S&P 990), sucking
new found optimism into the market and paving a fresh path of maximum
humbly resolute in my my long-offered view,
that this prolonged process will be a multi-year malaise and we're
experiencing a cyclical bull within a secular bear. I could be wrong, of
course, but we're not destroying debt, we're inducing it and that's
running in the wrong direction. How these imbalances manifest--a currency
'release' (dollar debasement) or lower asset classes through further
deflation--remains the trick of the trade."
my part, I'm taking the journey one step at a time while understanding
there will be frustrating junctures, opportunity costs and opportunistic
holes to hit. Through it all, my modus operandi is "risk management
over reward chasing, financial staying power
and a steadfast desire to part of the solution rather than be part of the
He was responding to a fellow Minyanite who had
agree with your thesis
that this powerful rally off the March low is most likely a cyclical bull
within the contest of a secular bear. As the market moves higher, I hear
many pundits 'calling the bottom'. Since the primary job of every bear
market rally is to appear to be the start of a new secular bull, this
appears to have followed suit.
only question in my mind is how far this rally will run. Using the six '29-'32 bear rallies as reference,
it would appear the rally could run anywhere from 24-48 percent, with the
greatest concentration in the mid- to upper-20% range. That would indicate
a rally peak anywhere from current levels to SPX 985 (200-day moving
average). Your thoughts?"
Sauk: Strategies for an Overbought Bear Market writes, "I've
learned the hard way that buying stampedes tend to exhaust themselves in
17 to 25 days. It's rare for one to last more than 30 sessions; the
longest one lasted 41 days."
past is prologue, what should happen now is this: Some piece of bad news
should com out of nowhere to startle the markets. Consequently, major
indexes will decline for 3 to 5 sessions (sometimes it's as many as 7
sessions), then they re-rally. In the re-rally, if the indices make new
reaction highs, the rally can extend. If however, they fail to better
their recent reaction highs, then a more enduring correction should be in
Let's attach some numbers to this. Today, April 15th,
is the 27th session of the current buying stampede. Friday, April 17th,
will mark the 29th session, and Monday, the 20th, will be the 30th buying
stampede session. The 41st day, corresponding to the longest bull stampede
Jeff Sauk recites, would be Wednesday, May 3rd. Adding 3 days to that
would bring us to Monday, May 8th, and adding 7 days would take us to
Friday, May 12th. ("Sell in May and go away"?) Of course,
there's nothing that says this latest bull stampede can't set new records.
It's clear that the "smart money" thinks that
we've seen the lows for this multi-year market cycle, and that at least
some of the "smarter money" thinks we haven't. In Minyanville
today, Banks Rev Up Foreclosure Machine
explains that major banks cooperated with President Obama's moratorium on
foreclosures, but that has now expired, and "the Wall
Street Journal reports banks and mortgage-servicing companies are
pushing through foreclosures at the fastest rate in more than a
"Foreclosures, however, are creeping
into high-end markets, and coupled with high levels of inventory and weak
demand, prices are tumbling."
The author concludes,
back in reality, property values--actual homes rather than
statistics--will keep sliding."
In Goodbye to the
Rally?, Minyanite Mike Mish Shedlock presents Kevin Depew's daily
"Where We Stand".
The author explains,
We Stand (WWS) isn't a timing inidicator (nor is it intended to be). Yet
every bear market rally has ended with all (or all but 1) of the above
indicators in green. Likewise, every bear market rally started with every
one of the above indicators solidly in the red. A nice turning point can
be found simply by watching the shift from red to green, and vice versa,
in the above table.
is not foolproof (no indicator is), so don't bet your life on it.
Nonetheless, history (so far) suggests that once a turn is made, the turn
keeps going until it switches from nearly all one color to nearly all
The author concludes,
see pretty rampant optimism in equity options, general belief that we've
turned the economic corner (I highly doubt we have), technically
overbought indicators, euphoria on CNBC, and a sell-off for whatever
reason on supposedly good news. While the market could continue to rally,
this is certainly not a good mix."
In another news item, banks have cut back again on
lending over the past month or two.