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The Intelligent Trader's - Long and Short of It
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From: Robert A. Christy Editor/Publisher, ‘The Intelligent Trader’ http://www.intelligent-trader.com http://www.christyinvestments.com
Date: August 9, 2009
The Numbers
The numbers continued to strengthen this week and the Offense remains on the field across the board. The only sector on Defense is the telephone sector. As you can see below, risk continues to rise. The next few weeks will be interesting with Congress heading home to face the music about healthcare. I don’t expect much in the way of fireworks between now and Labor Day.
Index Bullish Percent
Sector Bullish Percent
When Will the Party End?
The S&P 500 has spiked 15% plus higher over the past four weeks. There is nothing like a strong move to get people onto the bandwagon. Small investors are running head first into the market in fear of missing the next big move.
The numbers above readily show that stocks are overbought and due for a respite. Some of our indicators are suggesting that the recession may be over. This does not suggest in any way that a strong recovery is afoot. But one thing is clear, we won’t know if this is the bottom for the economy for at least another quarter or two.
Earnings are coming in better than expected. This is due to (1) analysts completely under estimating the companies they cover, (2) and due to the cost cutting measures of companies desperate to get the garbage off their books. The bottom line here is that if you beat the estimates, stock prices go up.
Another item fueling this move is that the mutual fund lemmings are flush with cash and need to put the cash into the market. This was evident earlier in the spring and it is happening as I write. One note here – mutual fund types don’t buy things by looking at the charts. They buy stuff that is fundamentally sound because they have to. Their prospectus tells them how much cash they are allowed to hold. All the rest has to be invested. They will buy until they have spent all the cash that they have on hand.
What about the history books?
History suggests that there is more to the upside. Last week, a market buy signal was generated when the Dow Jones Industrial Average rose 10% over its 200 day moving average. Since 1921, this mark has been touched 18 times out of a possible 21. (Source: Bloomberg)
Adding more fuel to the fire is the fact that after a 15% or more quarterly gain (which we saw in Q2), the S&P 500 has been higher 12 months out a number of times. Since 1929, it’s been 11 out of 15 times and since 1942 the S&P 500 is 8 for 8.
The next obvious question is --- how much longer and how much higher?
As for the proverbial water glass – half full or half empty, I’m a guy who sees the glass half empty. But, I want to know where the water went. My skepticism, which is healthy, has served me well over the past 27 years.
The typical investor is the most pessimistic at market bottoms and most optimistic at the top. The talking heads are right now euphoric and the talk of a “melt-up” is now making its way into the lexicon. You read that right – I said a market melt-up. I don’t make this stuff up.
The skeptic in me thinks that that the 45% move in the S&P 500 since the March bottom is a little much and that a correction is in the offing. I’ll let my indicators do the talking and when they signal Defense, I am running for cover. Until then, I am moving up my stops and am perfectly happy to let the portfolio run another 10-15% or so.
Specifically:
** Members should check their emails or the Member’s Daily Comment page often for any portfolio changes.
I’ve said plenty for now. I’ll be back again tomorrow to talk about my trip to Las Vegas.
That’s about it for now. Let me here from you if you have any questions.
Robert Christy
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P.S.S. The currency market (forex) is the place to make money this year. If you’d like to know more about how you can participate in this, just send me an email and I’ll send out the information to you.
P.S.S.S. Please fee free to forward this to your peers, friends and anyone you think would benefit from its contents. They will thank you for it - and so will I!
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Robert Christy is a professional currency trader, stock trader, money manager, author and speaker. Mr. Christy is the President CEO of Christy Investment Group, Ltd., a fee-only registered investment advisory firm. He is also the Managing Partner and Portfolio Manager of Crabapple Capital Group, LLC and the editor/publisher of The Intelligent Trader, a subscription based long/short trading service. At the time of publication, Mr. Christy may from time to time write about stocks in which he, Christy Investment Group Ltd, Crabapple Capital Group, LLC or The Intelligent Trader has a position. In such cases, appropriate disclosure is made. Under no circumstances does the information in this column represent a specific recommendation to buy or sell stocks. Mr. Christy appreciates your feedback and invites you to send it to rac@intelligent-trader.com .
Robert Christy The Intelligent Trader
The Christy Investment Group P.O. Box 625 Alpharetta, GA 30009-0625
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