May 5, 2009
This was Turnaround Tuesday, and it lived up to its reputation.. The
markets closed a fraction of a percent below yesterday's close. The NASDAQ
the Dow divested
itself of 16.09
and the S&P
shorn of 3.44
to 904. Oil leaked
rose to $904.30.
The VIX fell 1.17
This rally isn't showing any signs of fading. Michael Ashbaugh charts new move above major resistance.
Todd Harrison is still calling for a "W"-shaped stock market
this year, Randoms: The Prism of Reality,
but is now entertaining the possibility of a test of the S&P 500 at
the 950-960 level. But the indices retest their March lows or whether they
don't, we have to make a judgment call at some point regarding whether or
not we're headed into a second Great Depression, and right now, it doesn't
look that way. Now, with the S&P 500 above 900, it's time to buy.
I'll try to write more about this in the morning. (My
dance card is rather full these days.) Right now, Amber has decided that
if she's here with Tommie Jean and me, "Papa" needs to be with
her. And I don't say "no" to our little darling when she
wants to play with me. Her undivided attention will last no longer
than a remembered embrace. We're our toddlers' firmaments, but it in a
blink or two of Time's eye, Amber's other little friends will take my
place. Tommie and I cherish this every moment of Amber's infancy and
(After the Open):
pre-market technical analysis email arrived, but I was too busy washing
Amber's face and hands with a warm, wet cloth, and putting on her jacket
and shoes to snatch a moment from household duties.
What the email says is that this rally is now probably
being driven by performance anxiety among fund managers. These managers'
performances are measured not by how well or poorly they perform relative
to the S&P 500. Their quarterly bonuses depend not upon whether they
make or lose money, but upon how well they perform vis-a-vis the S&P
500. After subtracting a fund's administrative and management fees from
the fund's total returns, it's hard to match the S&P 500, much less
beat it. And if the fund is holding 10%-15% cash, it becomes harder yet to
these fund managers have much to gain and little to to lose by investing
other people's money in the stock market even when they think it may be
preparing to pull back. (I've read that most mutual fund managers put most
of their money into selections of stocks that closely mirror the indices
against which their performance is measured, and then invest the small
remainder in stocks that they think have the potential to outperform their
Ultimately, this comes down to whom we believe. Do we
think that the claims and signs that a recovery is imminent are valid, or
do we think that the economy is going to relapse?
Action Taken to Prevent Hoarding of Flu Drugs
Experts: Tamiflu, Relenza work on swine flu but only sickest may ...
(Before the Open):
yesterday's collection of bearish articles must be added this latest, by
Mark Hulbert: Beware the bear,
and this: Time for tapping the brakes.
to interpret these articles is the next question.
Bearish articles can be bullish from a contrarian viewpoint: "The
stock market climbs a wall of worry."
On the other hand, Mark Hulbert tells us that the indices have come as far
as they have as fast as they have only twice before since 1940: from
September 21, 2001 through January 4, 2002 (3½ months) and last November
20th to this January 6th (1½ months). We're now up 36% over a two-month
period. The "Four Bad Bear Markets" chart below provides a hint.
as of yesterday's gains, it looks more like a new bull market rather than
a bear market rally. Institutions, which, I'm sure, are well aware of the
overbought nature of this market environment, have a lot of money to
re-invest and various attractive candidates for their investments. After
all, the Dow is down 42% from its 2007 high. Granted, it may not return to
that 2007 high any time soon, but sooner or later, outstanding companies
are going to snap back.And these market moves are comprised of individual
stock purchases (to the extent that they're not index manipulations).
Remember that today is "Turnaround Tuesday".
A modest pullback may be in order.
My pre-market technical analysis email hasn't yet
arrived. When it does, if I can snatch a moment from household duties,
I'll pass along its conclusions.