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my take on the market since the March bottom



June 04, 2009 – Comments (8)

The upward move in the markets that began with Vikram Pandits memo to Citibank employees that the bank was making money in the first two months of 2009, viewed from a chart might look like a massive upward swing hardly interrupted by correction. 

I have expressed concern over the speed of the rally at times, and suggested that a big downturn/correction would actually help the market get to S&P 1000 faster than we'd get there if the market continued up.  My logic was that the market needed to allow some more people to get into longer term long opsitions at prices they were happy with to build a base of long positions...  we needed, or so I hypothesized, to consolidate some gains and have some new positions open and all of that.

And while the big correction I've said I hoped for has not ever materialized, a look at the stocks I hold (and possibly many other stocks as well) gives me some reason to believe that the market has been correcting and consolidating all along...  but the corrections and consolidations have happened alongside considerable sector rotation that has prevented a broader downturn.  Allow me a chance to explain. 

The action in the S&P looks about like this:  1)  a big move from 670 to 790 followed by two down days taking it back to the 760s.  That first move basically had no retracement.  2.)  it then moved quickly to the 830 range before tumbling back to the 780 range.  3.)  a quick run to the 870 range before that really bad monday in april after options when it crashed back to support at 830.  From there it ran more or less straight to 930 before going flat to backwards for 3 weeks, and moving up again this week.  Not a whole lot of time to consolidate and let new money in, except in the 3 weeks after may 8th when the market dipped to the 880's on a couple of occasions. 

So the S&P has not seen a substantial retracement.  But individual stocks I hold HAVE. 

Take the Casino names.  I own BYD, MGM, LVS, and WYNN from very low prices and their behavior over this market rally has been pretty wild.  LVS almost quadrupled in the first month of the rally from under $1.50 to over $5, but then retreated to back below $4, and spent nearly 3 weeks consolidating itself in the 4-5 range.  It then ran all the way to the 12s before retreating to the 8s, and seeming to settle in lately around $10.  of the $4 move from 1.40 to over 5, 40% of it was retraced and it then spent 3 weeks consolidating in that range.  Of the $7 move from 5-12, 50% of that was retraced and its now spent a month consolidating in the $10 range. 

WYNN went from 15-23 then back to 19 (the 50% retracement chartists always want to see), then on a rocket ride to $50, then all the way back to $35, and seems to be consolidating around $35-$40 now.  50% retracements all around.

Moving away from casinos to look at some of my larger positions.  USG made a monster move from $4 to $17+ over the first month of this rally before falling back to $11 and now consolidating in the $12-13 range.  So up $13, back down $6+ = 50% retracement, and now a full month of consolidating.

RCL has shown some retracement, ASH has not really shown much, but it did spend almost a month consolidating in the $25 range.  ASH was so brutally irrationally undervalued at the bottom as to be laughable... so for it retracement may not be necessary.  That was the one-in-a-lifetime deal...  I bought alot, I wish I'd have bought more.

XL went from 3 to 11 back to 8, and has spent almost a month now consolidating around the $10 range. 

BAC has retraced and consolidated.

Meanwhile some of my commodity holdings haven't followed this same basic pattern of a rapid rise to the May 8th levels, followed by significant retracement.  ACI completely, totally lagged the first part of the rally, being not much up from its march lows at the end of April, but has since bounced up nicely.  CHK has also shown recent positive activity...  TCK has been a rocket ride the whole time, etc, etc. 

My point, if long winded, is just this:  a whole lot of retracement and consolidation has been occuring, its just that its been combined with sector rotation that has prevented the market as a whole from showing the large retracement that alot of individual stocks have.  Which leads me to wonder if enough money is getting in at prices its comfortable with to set this market up for a push towards the 1000 mark sometime this summer without another huge drop.  Maybe another drop to the high 800's ... which would make the market largely flat from intra-day on april options day to the next dip, almost 2 months of basically flat market. 

I see alot of stocks consolidating at various prices, on what's now cumulatively alot of volume.  That may be a bullish sign. 

Also, the market itself viewed not from the perspective of the last 3 months, but from the time of the Lehman Brothers collapse, is basically flat for 7 months, that flatness broken only by the savage volatility last fall and the fairly dramatic dip/rally from mid february out to mid April.

And so I suggest for your consideration a variant view on the recent rally.  Perhaps instead of looking at it as irrational that we rally so violently while still in a recession from the march lows - thinking of the rally as the abberation or oddity...  instead of that think of the march lows themselves as the abberation and oddity. 

There was simply no reason for the market to go THAT low, that was the irrational part of all of this, and drawing a flat line from mid Feb to mid April you don't see all that much of a rally here, you just see one big flat trough waiting, perhaps, for a surer signal that the recession is approaching its end.



8 Comments – Post Your Own

#1) On June 04, 2009 at 9:11 PM, Alex1963 (27.90) wrote:

I agree with you. I've seen the same in RL portfolio. Altho my blue chips have hardly moved. I own 3. My bias is that the market has become a swing trader and simply takes profit, runs to the next over sold/undervalued sector and repeats. That why nearly everything has had it's golden period over the last 3 months. Things that should move opposite each other aren't dependable. US vs foreign markets or dollar/gold, interest rates/commodities etc I'm no veteran but this just truly seems like a weird market.

Great post



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#2) On June 04, 2009 at 9:18 PM, checklist34 (98.75) wrote:

thanks Alex. 

hopefully my thinking is kind of correct and the market is slowly setting itself up for another push to the upside sometime later this year.


good luck to all longs

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#3) On June 04, 2009 at 9:38 PM, BullMktAg (< 20) wrote:

Check -

That's a great way to look at this thing.  I agree - the market dropping to irrational levels (the impending end of the market was upon as, afterall) spurred this rally to bring us back to more appropriate levels (or perhaps a bit over).

I think you may be correct.  I'm still expecting another correction, though.

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#4) On June 04, 2009 at 9:41 PM, millionby24 (< 20) wrote:

Nicely put, the market won't crash again anytime soon

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#5) On June 04, 2009 at 10:58 PM, checklist34 (98.75) wrote:

i hope not, million.  I sure hope not.

DRIP - yes, thats how i've come to view this rally after thinking about it a great deal this evening.  We have been at basically some approximately reasonably depressed level (~~S&P 900-930) for 7 months now except one irrational drop and the bounce back to this same basic range from that drop.   I hope that line of thinking is correct.


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#6) On June 04, 2009 at 11:49 PM, Harold71 (< 20) wrote:

the market won't crash again anytime soon


Hehehe.  That is the type of mentality we bears love to see.

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#7) On June 04, 2009 at 11:58 PM, BullMktAg (< 20) wrote:

This should be the post of the day.  All this while I've been nervous about timing to sell.  Maybe I should have just sat back and relaxed after buying in through early May?

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#8) On June 05, 2009 at 12:31 AM, checklist34 (98.75) wrote:

DRIP...  I absolutely don't know the short term moves of the market, although like probably every investor I yearn to anticipate them. 

We've crashed, crashed some more, bounced back to just "crashed" from "crashed some more" and if my take as expressed above a combination of this level, or a level a bit below this perhaps being what the market at large, seems to have deemed roughly fair value, and with barge loads of cash on the sidelines that wants to get in on dips, I can envision a scenario where we don't crash more than say 5-10% from here for the duration of the bear market.

I can also envision a situation where the market flatlines for an extended period of time, as it has since early may.  Up and down, but with the net direction sideways, as people await some idea of what the outcome of the recession and the stimulus and all of this is. 

I don't know.  For now i'm sticking, except on a case by case basis looking at individual stocks, to my plan of exiting the market or taking on a total hedge at S&P 1000-1100.  We aren't that far from that now...

I got nothing.  But i know that S&P 700 is irrationally cheap. 

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