Tuesday, December 9, 2008

Up, Up and Away! (sort of)

With no apologies to Superman, this rally is giving us that up, up and away feeling but with a kryptonite chaser. In other words, I am FAR from complacent despite my view that Dow 10, 000 is coming. And if we get there then I'll be cashing in the longs and putting on the shorts.

Contrarian contrarians - those who look at all the other contrarians and take the opposite view - which ends up being the view of the masses, think there are too many people looking for that rally so it won't happen. The masses look at the news and say the economy is going to hell in a handbasket.

1-Show me a majority of people/analysts/newsletter writers that are looking for a rally. Only then will I agree to fade them. Right now, the latest AAII survey has about 47% bears. Some majority of bulls, right?

2- The news is already baked into the market. Why else would a record number of job losses - a surprisingly high number, at that - result in a market rally? Trade the news and you are trading what the market did nine months ago.

So, the market can rally. This is not a bottom call - although I do think we've had it - but rather a call to make some cash before the opportunity dries up. But don't be a pig. Sell too early rather than too late.


Paul O'Cuana said...

I thought it would be fun to take the historical closing data for the S&P 500 for 1974 and apply today's numbers and dates as if November 20th were the low. What does this mean? Absolutely nothing, I just thought it would be fun.
After hitting the bear market low of 752.44 on November 20, the market rallied over 20% to reach 909 on Dec. 25th. The market came within 4.5% of its low on Jan. 23rd when the S&P closed at 785.

10/3/74: 62.28 11/7/74: 75.21 12/6/74: 65.01

patrick neid said...

Paulo, Quick...

Here's another analog chart that would indicate new lows after an almost 50% rally akin to the 1975 rally. The difference being that the 75 rally paused and later went on to the old highs.

In this case 1937-38 rally fails and we ultimately break to new lows. Some pattern recognition folks have felt that the 2000 Nasdaq was 1929's Dow. The rally to date 2003-08 in the Nasdaq was the Dow's 1933-38 broadly speaking.

Here is the link to the daily


Here is the link to the long term overlay of the Nasdaq and the Dow.


Personally I'm in the 74 camp as you know. Either approach supports a very significant rally from this area. All I can say is it had better for a whole lot of reasons that have nothing to do with making money in the market.