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A decoupling, making me near-term bullish.



March 04, 2009 – Comments (13) | RELATED TICKERS: QLD

I don't often make market calls or try to "read the tape" for sentiment, but I do think something meaningful happened Wednesday, when US bank stocks lost another 5% (which is a really large drop), while the S&P 500 rose more than 2%.

To me, the market has seemingly traded down extremely sympathetically, if not outright arm-in-arm, with the health of the banking industry. And rightly so: Banking runs through, supports, feeds, and also partly reflects, the health of our nation's (and the world's) whole financial system.

So with the failure of so many banks, with the toxic nature of their assets, with the failure of their leaders and visions and business models and the list goes on an on, we have all taken a very huge hit... and as I've written in the past, we are part of the problem as well, willingly and greedingly seeking too much loan for too much house with not enough downpayment and not enough skepticism. I'm not one who routinely blames it all on the banks -- I will blame you and me every bit as much -- every one of these loans was a handshake between two parties.

That said, if US banks suck -- and every bit of evidence suggests they do -- there are other banks. *And* there are new banks that don't yet exist that will come as new start-ups. The banking system will be restored, and it may not look very private-sector American anymore -- it may look more like Uncle Sam, and/or it may operate from foreign capitals. No matter -- banking will happen, it will become whole again. In the meantime, there is a crisis of confidence and leadership, and that crisis more than anything is behind a nearly unprecedented halving of the US stock market over 18 months' time.



... for us to find US banks take another 5% left-hook to the solar plexus from angry investors today, while by contrast -- and even technically including banking-sector losses -- the overall market shot up almost 2.5% today...

... I don't have a market-history database, but if I did I would be taking a hard look at my historical data and asking how often has there been a spread of 7.5% in a single-day's move between the S&P 500 and Wilshire's US Bank Stock index. Without knowing the numbers, my intuition is that this is a very great anomaly.

Some anomalies are random, disconnected, irrelevant. I'm going to say for now, using little more than a little Foolish horse sense, that this particular anomaly is meaningful and important. Just one day! But at least something worth watching. It may just be that the baking "lead husky" that marketwatchers have been watching and allowing to dictate their own sentiment for months is now changing -- is dropping back in the pack -- is losing ground while the pack in fact begins to accelerate forward.

So let me back this blog up, as I often try to do, by making a CAPS pick as a proxy to reflect my own stated opinion, for educational and accountability purposes.

I'm going long QLD (ultra-long Nasdaq) for a several months' timeframe.

 Fool on. --David

P.S. I foreshadowed this blog with a line or two this afternoon on Twitter, which I just started a few weeks ago. I'm DavidGFool, if you want to follow my infrequent -- though of course always deeply meaningful and unbelievably compelling -- tweets. 

13 Comments – Post Your Own

#1) On March 05, 2009 at 12:30 AM, milpo (45.07) wrote:

Don't believe all the chatter about the nationalization of banks. That is what they want you to  believe.  No question, there will be a viable banking system after this chaos is over.  However, it will look more like a privatization of the state.  There will be a consolidation in the banking system where fewer and wealthier banks will remain.  Subsequently, they will start buying up fixed state assets because, by then, states will be bankrupt.  Consider the following critical analysis of the facts.  It is an interesting twist on current events.  Concerning the marketplace, I also believe there will be an irrational bullish run in the imminent near term.  However, it will cap off at 10,000 and then  crash again. Report this comment
#2) On March 05, 2009 at 8:42 AM, quitsmoking (< 20) wrote:

Comments on if you think this is near term bullish for financial stocks? I picture a good ride on financial etf's, what is your opinion?

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#3) On March 05, 2009 at 8:52 AM, bmasc23 (64.77) wrote:

Can I get a little more explanation of how you reached that conclusion?  You explain what's been happening, talk about the decoupling, then quickly move to a conclusion that a bull is coming.  I don't quite understand how you got the conclusion (bull) from the premise (decoupling).  I may just be missing something (which is very likely), but I'm trying to learn.



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#4) On March 05, 2009 at 9:03 AM, abitare (29.90) wrote:


Good to hear someone is a buyer. If I may ask politely, you have 75 current open picks, 13 are working, 52 have been destroyed by large margins. Is this the last attack out of desperation?


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#5) On March 05, 2009 at 9:09 AM, Hudarios (< 20) wrote:

A Gardner brother is going long on an ultra ETF?  I never thought I would see the day. Can a market-timing newsletter be far off?

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#6) On March 05, 2009 at 9:16 AM, abitare (29.90) wrote:

Also I might ensure a few things before I threw good money after bad.

1. Do you have 6-12 months of food stored?

2. Do you have 6-12 months of savings available for an emergency?

3. Is your car and credit cards paid off?

4. Do you have money set aside for childrens and families health care?

5. Guns are working in 12+ months they will be working a lot more. I might give that a look SWHC, RGR and OLN. As Celente says "when people lose everything, they loose it". Guns are going to be as necessary as food and shelter.

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#7) On March 05, 2009 at 2:07 PM, TMFSpiffyPop (99.73) wrote:

Fools, the CAPS pick is based on my belief that the financial system has led the market (way, way) down, but that the market eye (such as it is -- a collective, but intangible thing) is beginning to shift to see value that lives outside and beyond the banking system. I backed the thinking up with a CAPS pick. It isn't a bold, real-money call and it doesn't represent a grand move toward market-timing on my part. It's a "I'm trying this because I believe it and am going to learn from the result" call. Anyone who's been following my CAPS page knows that I use CAPS as my sandbox for ideas and learning.

So far (one day in), I haven't been right. --David 

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#8) On March 06, 2009 at 2:50 AM, TMFBreakerJava (99.75) wrote:

Hi Dave.  If it's not the end of the world as we know it, then the bottom must be near.  What a horrible period.  I am still long a number of RB stocks in particular while trying to raise cash by selling puts on great companies trading at beaten down prices.

Thanks for letting us know your thoughts.  Whether the bottom is right here or 650 or 600, I expect that the US economy will grow once more this year or next and that RBs will lead the way back up.  --Java

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#9) On March 06, 2009 at 3:05 AM, PrestonCheek (31.16) wrote:

Thanks Dave, I also bought QLD and TYH, I got into TYH way to early but I think the tech market is going to be fine.

Thanks for the article and positive outlook, we need a lot more of that these days.


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#10) On March 06, 2009 at 12:12 PM, ikkyu2 (98.57) wrote:

Lots of luck!  I'm wearing my pith helmet, because I think the sky is falling - so watch out for falling blue chunks!

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#11) On March 11, 2009 at 1:29 PM, TMFSpiffyPop (99.73) wrote:

Well, a 7% Nasdaq bounce yesterday and a bit more outperformance today and this pick has turned green for the first time. --D

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#12) On March 11, 2009 at 10:22 PM, PrestonCheek (31.16) wrote:

Dave, yeah great pick. I bought 200 shares, sold 100 into the first break and 50 today, nice gains. I think were going to take a small down turn and I will buy back in at or below my original position, if not I will ride it up from here. :)

I also got rid of my TYH for a small gain, I think I made a mistake on that one, well lets just say there are better fish in the sea, live and learn.

Hope you had a good day, looking forward to any other ideas you might have.


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#13) On March 15, 2009 at 3:26 PM, Alex1963 (27.83) wrote:

Hi Dave

Off topic (I tried to email you but obviously couldn't) I posted this short blog a few days ago "Does Caps Membership Mirror Market Sentiment?"

My premise is that MF membership seems to be increasing lately and has seemingly uptrended with bullish market sentiment. I check in every day to see my rating etc and make a daily note of overall membership that's why I have noticed. Have you (staff) ever tracked this? 

Also how come the email feature is disabled? It used to work when I joined late '08? I assume complaints and harrassing emails?

On topic. I'm still very skeptical of the US financials sector (particularly banks, financials & insurers). I don't think we've heard the last of the really bad news, personally. I'm looking into Canda though and smaller US entities. Perhaps what you see is investors who were stuck underwater in financials finally took a desparate lunge of out of their losers into the broader market to try and recover some looses? My broker put me in 100 shares of JPM back in May '08 (Yes, OUCH) before I paid any attention to the stock market, and I can tell you that no up day in the banking sector goes by now when I don't think about just taking my losses. I believe many of the big boys are parceling out the bad news in palatable (or not so palatable)chunks, waiting for the market (& ratings cos) to absorb, before dropping another bomb. As AIG showed by the path of the payouts from their TARP $, they are all globally intertwined it's just a matter of degree. I also believe we will start hearing talk about what to do about the conflict of interest between the rating/analyst services and wall street. This also needs attention. You just don't know who they are in bed with or hope to be in bed, with behind closed doors. And I'm extremely leery of any one with big exposure to non-collateralized lending like credit card companies. I believe this will be the next big failure. Just my opinion. 

Great site. Fantastic resource!



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