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kfisherprotege (33.61)

Bull $treet Week #6 - Get ready for another vicious slide

Recs

9

February 11, 2009 – Comments (1) | RELATED TICKERS: SDS , SIJ , SMN

Hang on folks!   ... or raise your hands over your head, whichever you prefer.  I think we're in for another vicious slide, maybe the last or next to last of this terrible bear market.  Here are two reasons why:

1) I had thought the Santa Clause rally from 11/20 to 1/6 was still going, but it really did end on 1/6 and we're now just meandering toward the next precipice.  Take a look at the lengths of the bear slides vs. bear rallies in the 2000-2003 bear market (apologies for the crooked lines, I don't know a good way to get spreadsheet data in here):

BEAR               9/1/00    10/10/00    39    1530    1306   -0.1464

BEAR - Rally    10/10/00 11/2/00     22     1306    1438    0.1011

BEAR               11/2/00  3/18/01    136    1438    1081   -0.2483

BEAR - Rally    3/18/01   5/19/01    61     1081     1316   0.2174

BEAR              5/19/01   9/20/01   121     1316     945    -0.2819

BEAR - Rally    9/20/01  1/2/02      102     945      1177   0.2455

BEAR              1/2/02    10/8/02    276     1177     769    -0.3466

BEAR - Rally    10/8/02  12/1/02   53        769       954    0.2406

BEAR              12/1/02   3/7/03    96       954        789  -0.1730

and this current one:

BEAR           10/7/07     3/15/08  158     1576      1257  -0.2024

BEAR - Rally 3/15/08     5/15/08   60       1257      1440   0.1456

BEAR           5/15/08   11/20/08  185      1440         741  -0.4854

BEAR - Rally 11/20/08   1/6/09     46         741        944    0.2740

BEAR            1/6/09      1/20/09   14        944         804   -0.1483

You see that the duration of 14 days is just way too short.  Much as I hate to admit it, downturns last much longer than 14 days.  Column 4 in the above table is duration in days, by the way.

2) It will take perhaps months before investors see the benefit of TARP II ($350B), Bank rescue plan ($1.5T or who knows), Obama's economic rescue ($820B).  While we can debate ad nauseum whether these plans have merit (for the record, I do think there is some good triage and stimulus elements mixed in with all the pork), the fact is there will be no rally until confidence is built.  And investor confidence will only come from seeing some evidence that this works.

So what am I planning to do?

Well, I was wrong to go long. I hate to admit, but I'll take a small hit, in CAPS and in real life.

So tomorrow I'll switch back to the Ultrashorts in CAPS (I hate "red thumbing" anything) and to SDS in particular in real life, and ride out the remainder of the bear.  I'm 85% sure of this.  But I'll sleep on it tonight.

-kfp

1 Comments – Post Your Own

#1) On February 11, 2009 at 7:48 PM, nuf2bdangrus (< 20) wrote:

The final leg down will be the nastiest....as long time inv estors finally throw their guts up.  The PPT et all is doing EVERYTHING they can to prevent such....they have thrown trillions in guarantees and the system is still fragile.

 

But in the end, the real economy wins.  Prices are falling.  Short term wild card.  Mark to market rule change.

 

The banks will rally fiercely if this rule goes into effect, as it will create miracle paper profits overnight.  But it will also create zombie banks that won't be able to lend for years.

 

There are a lot of people leaning short....I am long and accumulating with short hedges I jump in and out of. I am always wearly of a major short squeeze, so I must have a long portfolio.  Hedge hedge hedge.

 

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