Good time to review some old postsHere are my posts from the end of August. At that time the sentiments were extremely bearish. I warned in August against shorting a mkt with so many bears. Here we see the opposite, and I am warning not to go long a mkt with all bulls! Great time to short mkts!
The economics, math, charts, all time low for mutual funds cash, extreme bull sentiments etc... are all being ignored in favor of "Fed Magic".
The "Fed Magic" arguement is just too old. This is the same Fed who oversaw the 2008 crash, and May 6 flash crash....
Here is the Fed statement right before the 2008 crash:
Aug 5, 2008 FOMC statement:
"Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports.
Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. ... Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee."
Here are my end of August posts:
Sept 1, 2010
Gap up
Here we go. This rally should be very strong with few pullbacks from now until Tuesday/Wed Sept 7-8. I think we could see a decent pullback from the highs on Sept 7-8. Then another very sharp rally.
In terms of targets $22.50-23.50 for FAS looks good on the 7th or 8th. I still like $30-32 for FAS this month. For the S&P I like 1158 this month. I'll fine tune targets once we get a little closer.
Basically this is a short squeeze and wishful thinking rally. Sentiment capitulated and that also marked the bottom (and start of the short squeeze):
"Last week we saw a capitulation in sentiment from the retail individual investor (AAII) and this week it's the newsletter writer's turn. The latest survey from Investor's Intelligence showed a marked drop in bulls, and even a drop in the "correction" camp, with all of the defections moving over to the bearish side."
BULLISH 29.40 (-3.9%)
BEARISH 37.70 (+6.5%)
CORRECTION 32.90 (-2.6%)
That leaves the percentage of bulls under 30% for the first time since March 2009 (my emphasis here - MARCH 2009). Since the inception of the survey in 1969, there have been 162 weeks with as few bulls as we're seeing now. A year later, the median return in the S&P 500 was +18.3%.
Now I'm absolutely not suggesting a new bull mkt here, just unfinished bounce before mkts plunge!
SC
August 31, 2010
Politics
I suspect the main media spin for the Sept rally will be politics. Wall St. is funding the republicans big time right now. The media will say that the mkt is rallying because if the republicans get back in, then we would see a new bull market. They will say that the republicans will reduce regulation, support business etc...
This is nonsense of course, but I'm just pointing out what they will say. We are about to experience wishful thinking at it's most dangerous. This will just be a distraction, a way for the media to explain the miracle rally.
In the end the problems are too widespread and have been building up for much too long. Don't believe the media when they start to spin. For now mkts rally, but the ending is not good regardless of which political party.
SC
August 25, 2010
Markets bottomed this morning
I'm 100% sure. The chart that nobody is noticing right now is the weekly S&P. Take a look back to 2008. We are in a multi-year triangle. Support tested this morning and held firm. Next we test the top of the triangle which is where my Sept target of 1160 S&P comes in. This target also confirms with my other studies. Everything is lined up with no mixed signals imo. For FAS $30 to $32 max.
Everyone is focused on the very short term charts right now. It's time to take a step back and focus on the big picture - the weekly chart. In a way mkts are battling between the short term and long term pictures.
Between now and Monday, I believe mkts will gap up in a huge way, and continue to rally strong from there for weeks.
This is the last chance to unload FAZ and either sit in cash, or load up on FAS imo. Now remember when the mkt rallies hard DO NOT listen to the media or the masses. They will all be exclaiming "new bull mkt" at the top. If one buys FAS here, then have to sell once it rallies and move back into FAZ!!!
SC
August 24, 2010
Warning!!!!
Big rally coming for mkts imo!
I rechecked my calculations and the rally I have been expecting is going to be larger than many can imagine right now. Due to recent price action, my targets need to be revised.
I'll explain later in detail but for now, back in mid-July I was expecting FAZ to rise to $17.15. At the time it stopped at $16.72. I was surprised at the time as I was expecting a little more. Well we finally just saw that move now! In other words things are happening slower than I expected earlier in the summer.
What this means is that my target for FAZ drops from $11.75 to a new low below $10.78. For FAS my target rises from $26 to $30. For the S&P my target rises from 1145 to 1160.
The banks in particular according to my model will rally sharper than the markets for many weeks.
The economics are deteriorating or course, but the market is clinging on to upward momentum from many decades. People are reluctant to realize what is coming (depression), and therefore mkts can rally sharply (and illogically) in the face of this deteriorating economy. While the big picture for FAZ looks good, it doesn't make sense to hold for fresh lows before a turn around.
$rifin won't make it back to April highs, but remember FAZ has decayed with all the choppy trading this summer. This is why FAZ can hit new lows with $rifin making a lower high from April.
I like FAS, or can also just sit and wait in cash.
SC