Wednesday, May 6, 2009

Here Comes the Bull

That was the original title for today's column but they changed it so it would not be like
Here Comes the Bride. I had Here Comes the Judge a la Laugh-In in mind but even more importantly it was a play on words. No, I have not turned bullish. But since my 875 target was blown out I have stepped aside to rethink and figure out the market's real message here.

It's not "if" the market will correct but "when" and from how high up. I thought 875 was the place but clearly it was too low.

Before you call me the permabear that blew it, keep in mind I set the 875 target in March the day after the big 6% rally. The S&P was barely above 700.

So JPMorgan does not need more capital. B of A does - but is that the real news? It seems like everyone has jumped on the bandwagon of the return to a healthy financial system already and have forgotten that toxic assets and home inventories are still problems.

History tells us that bear markets do not turn on a dime. Is it different this time? It is never different. People will get overly enthused too early and get slammed as the first correction sets in. Then we can finally see the decks cleared - and for the sign of the times - delevered.

Vive la short squeeze!


Kiyoshi said...

Hey Michael;

The last time I commented I said that I thought 9K was doable and I still think it is.

I agree that the market is very overbought and maybe we get a correction after the "stress" news, but as I said before I am looking for signs of a negative divergence and as yet see none.

wave4 said...

Looks like the McClellan Oscilator (market breadth) is showing divergence. Perhaps Michael would like to comment.

Fenner said...


The reason the technicals were blown out was because radical monetary policy is in the process of blowing another monstrous bubble, technicals do not predict bubbles. That said, we're looking at a greater disconnect here between reality and fantasy than ever. The housing bubble produced jobs. Ritholtz, I recall, had some amazing figure about the percentage of jobs created by housing during the last bubble. This new bubble in the financials and ultimately in the the spx will produce zero jobs, wages will continue to plummet, as will hour worked and therein lies the disconnect. The question now is when will that idea truly start making the rounds? When will people care more about the fact that new jobs are not being created than that fewer jobs are being lost? That's when the bear will return. This new bubble will be shorter lived because there are fewer fundamentals to back it up than even the tech boom.

I wish you'd comment on this. Thanks.

Quick Takes Pro said...

I cannot comment on the McC Oscillator as it never was a part of my arsenal.

However, the disconnect created by non-free market meddling is palpable. I ran a chart in the newsletter this morning comparing the last bottom (2002) with this one and where the 200-50 expo moving avg system fit in. It plays out according to Fenner's scenario.