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July 01, 2010 – Comments (31) | RELATED TICKERS: RE , A , L

There is a lot of talk / speculation about a bounce here. "Everybody is bearish, including CNBC. The market loves to fake people out. Since a breakdown is expected, there is no way it will do that".

Quite frankly, I hear a lot more talk like that above instead of people calling for the breakdown. I think people are trying to get too cute calling everybody else a contrarian indicator.

I think the simple fact is: this move is real.

We have acceleration down, increased breadth down, increased volume, increased distribution. For crying out loud the daily indicators aren't even oversold yet!!!. I think the macro and fundamental situation is deteriorating precipitously, and I think for the first time in the last year and a half the macro and the technicals are finally coming back together (and I think this is a very bearish combination).

I don't know the future, you don't know the future. I think you are a contrarian indicator, you think I am a contrarian indicator. But I think odds and the risk/reward (and that's all I can play) favors a mini-crash here. I have no interest in getting cute with this wave a trying to time a bottom. I think we have a few weeks of some pretty sharp selling off ahead of us.



ENLARGE

31 Comments – Post Your Own

#1) On July 01, 2010 at 12:23 AM, goldminingXpert (29.65) wrote:

You'd have to be quite brazen to buy a market just after it confirms a gigantic H&S and breaks the only support between here and 900 (so says none other than Goldman Sachs.)

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#2) On July 01, 2010 at 12:29 AM, binve (< 20) wrote:

GMX, I completely agree.

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#3) On July 01, 2010 at 12:30 AM, JGus (28.87) wrote:

VERY REAL!

GMX, I did make a speculative purchase of some TNA late this afternoon as I anticipate a bounce in the next few days. I am still net short the market, however.

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#4) On July 01, 2010 at 12:37 AM, goldminingXpert (29.65) wrote:

I expect a bounce between here and 1000, though the futures are again slumping badly this evening on yet more bad Chinese news (it never stops).

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#5) On July 01, 2010 at 1:36 AM, ChrisGraley (29.98) wrote:

I still can't figure out China.

Global growth will be down, but domestic growth will be up. 

I don't know the extent of the China event or it's effect globally.

It's probably the biggest factor, and I don't know jack.

If anyone else has more insight, I would appreciate the opinion. 

 

 

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#6) On July 01, 2010 at 8:30 AM, bothisellhigher (29.12) wrote:

"I think people are trying to get too cute calling everybody else a contrarian indicator." 

I think the same.  This is an excellent blog with an excellent message...Turn your head around and look fools-that's a mountain we just fell off.

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#7) On July 01, 2010 at 8:54 AM, binve (< 20) wrote:

JGus ,

I think so :)

goldminingXpert ,

I agree. Nothing goes up/down in a straight line. But is it a major / tradeable bounce? or just a pause before more selling off. I think the latter.

ChrisGraley ,

>>I still can't figure out China.

I agree. Which is why I stay away

bothisellhigher ,

Thanks man!

>>Turn your head around and look fools-that's a mountain we just fell off.

Exactly man..

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#8) On July 01, 2010 at 10:01 AM, Seansonfire (40.33) wrote:

ChrisGraley,

PMI on China came out down a bit this morning, which most people will probably take as a bad sign, as they probably should when looking at internal growth.  But I guess it does prove that the Chinese Government has a better handle on their Economy then the US does.  As they have made moves over the last few months to prevent a bubble from forming in the ecomony, and more specifically the real estate market, and slowing it down.  Well it looks like it has worked.

Sean

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#9) On July 01, 2010 at 10:34 AM, Griffin416 (99.98) wrote:

Geez, if I'm even bearish, you know its bad. I majorly hightened my cash position about 3 days ago. Every technical indicator I follow points down. Although I think it will be at most 3 months (the 3rd quarter of the presidents first term). So to keep my accuracy, I will not be changing my caps positions, but my points will likely fall off for a while.

In bear markets, oversold condition may not have bounces, they more often lead to more oversold-ness

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#10) On July 01, 2010 at 11:04 AM, binve (< 20) wrote:

Griffin416 ,

Hey man!

>>Geez, if I'm even bearish, you know its bad.

:) gotcha. Someday in the future, when the stock market outlook is bleak, binve will turn into a raging bull. I am actually looking forward to that day, and I will say it loudly when I do. But I think we have a lot more selling off between now and then.

>>Every technical indicator I follow points down.

I agree. And there scary thing is, there is still a lot more room on the downside, especially for daily indicators

>>Although I think it will be at most 3 months (the 3rd quarter of the presidents first term).

I agree with you. I think this selloff lasts maybe 2 months and then we get a very strong relief rally through the end of the year. Beyond that however, I am quite bearish next year: Update on the Large Count.

>>In bear markets, oversold condition may not have bounces, they more often lead to more oversold-ness

Exactly. As an interesting comparison, pull up a monthly chart of the SPX for the last 30 years, and look at the RSI from 1995-1998. That stayed overbought for years, ignoring every technical signal that the move made no sense. I think we will get oversold conditions that are on this order (maybe not so extreme). A move that is absolutely oversold and just doesn't let up. The amount of pessimism will completely burn away the previous optimism (we are in a 35 year valuation cycle right now that points to a bottom in 2012-2014). Those are the conditions I will be looking for when I become a LTBH investor once more.

My $0.02. I really do appreciate your posts and your comments! Even if we don't see eye to eye, I appreciate the dialogue we have!.

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#11) On July 01, 2010 at 11:21 AM, Griffin416 (99.98) wrote:

I appreciate your thoughts as well. If I were to think only one way I would be blindsided. I was a bear through most of '08 and was trying to convince others as well (rightly so) and only lost a little money.

The only shred of bull hope I have I 2004. A recovery year after a mega bull run (2003) after a big crash. In 2004, around July-August, the death cross was right before the bottom for the year. Every technical indicator pointed down, like now.

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#12) On July 01, 2010 at 11:55 AM, binve (< 20) wrote:

Griffin416 ,

Thanks man!

>>The only shred of bull hope I have I 2004. A recovery year after a mega bull run (2003) after a big crash. In 2004, around July-August, the death cross was right before the bottom for the year. Every technical indicator pointed down, like now.

This is something I have thought a lot about as well. But the structural economic problems now are so much worse then they were in 2004. I just don't foresee us dodging another bullet :(..

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#13) On July 01, 2010 at 1:17 PM, Momentum21 (83.43) wrote:

Ever since I have started doing the opposite of what I think it right I have been more successful in the market. When I saw your post I believed you were "right" and therefore asked for access to my trading account be restricted for 10 days. 

I am long and wrong and can't do anything about it! 

No disrespect meant binve...I always value your posts...as someone once said around here I want all the best for you and maybe even more...LOL...especially when it comes to our shared love of SLW!

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#14) On July 01, 2010 at 1:41 PM, binve (< 20) wrote:

Momentum21,

>>Ever since I have started doing the opposite of what I think it right I have been more successful in the market.

That would probably work out better for me too :)

>> When I saw your post I believed you were "right" and therefore asked for access to my trading account be restricted for 10 days.

LOL! Nice :)

>>No disrespect meant binve...I always value your posts...as someone once said around here I want all the best for you and maybe even more.

None taken! I appreciate that man. I am just a guy with opinions, and I share them. I don't take myself too seriously, and I don't think others do either :)

>>specially when it comes to our shared love of SLW!

binve hearts SLW :)..

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#15) On July 01, 2010 at 1:41 PM, Tastylunch (29.45) wrote:

Honestly I thought today we'd bounce. 7/1 seasonally has a 100% bullish bias. The fact that we are slightly down today as of this writing is a horrible omen.

Perhaps not for next week but for the trend in general.

seems like the street is finally aware that Q3 is one big miss in the making. Too bad I was hoping it'd get surprised. :)

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#16) On July 01, 2010 at 1:58 PM, binve (< 20) wrote:

Tastylunch,

Hey man!

>>Honestly I thought today we'd bounce. 7/1 seasonally has a 100% bullish bias.

That's certainly not out of the card, but after the highly impulsive and strong move down this morning, the move back up looks like a corrective reaction. It still looks bearish to me.

>>Perhaps not for next week but for the trend in general.

I think so.

>>seems like the street is finally aware that Q3 is one big miss in the making. Too bad I was hoping it'd get surprised. :)

:)..

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#17) On July 01, 2010 at 2:22 PM, Tastylunch (29.45) wrote:

Signpost

we are at the dotted line, japan wise

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#18) On July 01, 2010 at 2:54 PM, binve (< 20) wrote:

Tastylunch ,

I think so too..

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#19) On July 01, 2010 at 2:56 PM, Griffin416 (99.98) wrote:

Tastylunch,

Financial/ gov't factors aside, the reason Japan stock market sticks is their dwindling population (link below) It is also the reason why America will continue to grow...over time, because it is actually growing over time (see second link below)

http://www.google.com/publicdata?ds=wb-wdi&met=sp_pop_grow&idim=country:JPN&dl=en&hl=en&q=japan%27s+population+growth

 http://www.google.com/publicdata?ds=wb-wdi&met=sp_pop_grow&idim=country:USA&dl=en&hl=en&q=american+population+growth+chart

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#20) On July 01, 2010 at 3:14 PM, dwot (73.98) wrote:

Chris,

On China, a friend was saying there is a lot of bad new not being reported in China, rioting and gross trampling of human rights.  What I find is only reference to rioting last year, http://www.taipeitimes.com/News/world/archives/2010/05/15/2003472959.

 I have no idea the extent of this, but rioting usually has underlying economic reasons for it.

My friend was say that very severe measures have been used to control the rioting.

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#21) On July 01, 2010 at 3:17 PM, dwot (73.98) wrote:

Momentum21, LOLOLOLOLOL... LOLOLOLOL...

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#22) On July 02, 2010 at 2:32 AM, Tastylunch (29.45) wrote:

Griffin416

I'm aware of that, but I doubt our population growth is enough to do more than partially offset our financial problems given the size of those problems.

At best I think we'll get an earlier exit from the malaise than our Japanes friends from theirs.

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#23) On July 02, 2010 at 2:51 AM, TMFUltraLong (99.95) wrote:

Interesting... the majority around here are starting to turn bearish and I'm beginning to feel just a slight inkling of bullishness again (in certain sectors of course, not the entire market just yet). Feel free to consider me the contrarian contrarian indicator =)

Medical, technology, basic materials are look just fine to me, of course financials and especially the housing sector are full of doo-doo feces to quote Mr. Garrison and are probably headed to hell in a handbasket. 

Keep knocking the market down, I'm starting to see some value.

UltraLong

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#24) On July 02, 2010 at 10:24 AM, binve (< 20) wrote:

UltraLong ,

>> Feel free to consider me the contrarian contrarian indicator =)

Actually, based on my score, I am the definitive contrarian indicator. If you do the opposite of binve, you will be all right :)..

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#25) On July 02, 2010 at 4:12 PM, Griffin416 (99.98) wrote:

Binve, I know you are great with responding and posting pictures, etc. So please help.

I recently became concerned with the death cross (50/200). I spent some time examining every cross-over up and down since 1928 and have a spreadsheet in Excel that I would like to show the results of my findings. How do I post it?

By the way, the results, are out of 45 times the golden cross occurs, the average result is 12%. While the money you would have save by selling the death cross and buying back at the golden one is a total savings of 1%

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#26) On July 02, 2010 at 4:31 PM, binve (< 20) wrote:

Griffin416 ,

First:

To embed an image, here is the deal:

1) Go to www.flickr.com and sign up for a free account (easy, takes less than 3minutes)

2) Chose the picture and upload it to Flickr through the upload page.

3) After you upload the photo, go to your "Photostream" and click on the photo. There will be several links / buttons above the photo.

 3a) Click on the one that says "All Sizes"

 3b) After you do you will see at the top "Small / Medium / Large" etc. Click on the Medium or Small one.

 3c) Now at the bottom of the photo there are some text boxes with HTML in it.  Go to box 2 labeled: Grab the photo's URL

4) Come back to Caps and write your comment

5) At the end of the comment, write this code:


But replace URL_TO_SMALL_PIC with the smaller picture URL from Flickr, same with the large one.

- Use the small photo URL inside the IMG Tag
- Use the large photo URL inside the a Tag

You are set!

>>By the way, the results, are out of 45 times the golden cross occurs, the average result is 12%. While the money you would have save by selling the death cross and buying back at the golden one is a total savings of 1%

Since 1928, I totally agree. As I lay out here http://caps.fool.com/Blogs/the-long-view/314202, we were in a secular bull market from 1933-2000. I think from 2000 to now (and beyond) we are in a secular bear market. I think the situation has changed until the major structural imbalances in the economy are fixed. As such, I think this will be the last death cross or golden cross we will see for awhile. That is just my feeling.

Thansk!..

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#27) On July 05, 2010 at 10:27 PM, kkotwani (99.62) wrote:

One among very few bullish around here.

In last two days....market has recovered drastically from lows.. even though market was net down....volatility coming down sharply...There is strong divergence between volatility and market price..This divergence has started building after sharp increase in volatility and sharp decrease in market.

This indicates strong sense of confusion between bears and contrarions (bullish) at this point.

Market is not very undervalued but somewhere less than fairly valued and more than undervalued. We can see 10 to 15 points more drop in S&P here where it will start feeling like great bargain. Given large number of people are net short at this point...any small good news will trigger huge gains in index as it will be defficult to cover short positions. Well thats how the classical contrarion theory works.

I am totally not convinced that we will see bad 2nd quarter earnings...More and more companies trying to run lean and mean...cutting costs/hiring and improving bottomlines....We will see the way we saw first quarter earnings most companies beating street estimates. 

Yes, there is no reason at this point that S&P will go above 1200 but also there is no reason that S&P will go below 1000. Its trading at the lowest of its fair range....I am buying bargains like hell here. I am betting mostly on basic material, energy, health and some bargains in other sectors.

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#28) On July 05, 2010 at 10:47 PM, Momentum21 (83.43) wrote:

#27 - I like the general observations...even though I feel real lousy about it I have been buying here. The market had a similar look and feel exactly one year ago. 

My portfolio has been mixed in a funny way (but I definitely have been underperforming the index during the correction)...a few tickers will catch fire on high volume and others will just get hammered with very little action. 

Believe me...That is not my premise for buying...I just believe I have better odds being long from where we stand.  

When folks decide enough is enough we are going to see some fireworks. At least that is what helps me sleep at night! : ) 

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#29) On July 05, 2010 at 11:06 PM, goalie37 (92.69) wrote:

I am probably the worst among the entire Fool community at predicting markets, therefore I won't try.

The macroeconomic condition is much worse than it was two months ago.  Our slow and fragile recovery doesn't look like much of a recovery at all now.  Will markets reflect that more so than they already have?  I have no idea.  Mr. Market stopped taking his meds long ago.

I will continue following a small group of stocks where I am a long term bull, looking for much fatter dividend yields than what we normally see.

Thanks for the posts Binve.  They are always informative.

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#30) On July 06, 2010 at 9:14 AM, binve (< 20) wrote:

kkotwani,

Fair enough. It does look likely that we will get a bounce here. I am of the mindset that it will be short lived (maybe only this week) and then we are heading down.

There is nothing special about this level. And I think we are headed lower. We do have major support at 900-950, and so if we reach that level (which I think is likely in the next 2-3 months) on positive divergence on a daily chart, then I would cover partially and go long / hedge long. This would be a trade that would work until the end of the year (per my estimate).

Long term, I am still very dubious of a sustainable recovery and think we will eventually revist the March 09 lows. We will see how that all shakes out.

Thanks for the comment!

Momentum21 ,

Nice :)

goalie37,

I am in agreement

>> Mr. Market stopped taking his meds long ago.

LOL!

>>I will continue following a small group of stocks where I am a long term bull, looking for much fatter dividend yields than what we normally see.

Amen to that: http://caps.fool.com/Blogs/is-the-market-fairly-valued/320237.

Thanks man!.

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#31) On July 08, 2010 at 1:59 AM, kkotwani (99.62) wrote:

Hi Binve,

 I donot conform to your long term as well as short term view of market.

 Ok, so we saw a strong rally after I wrote my comment on Monday...there was no great news other than traders in Asian markets covering shorts...thats leading to global rally. Contrarion theory working the way it was supposed to work.

Even after todays major rally majority of large and small caps are still trading at bargains. We will be hanging around 1100 level for few months....2nd quarter earnings will be like 1st quarter results. Unless we see any real growth in sales number or improvement in housing market I dont see market crossing 1000 or 1200 on either side for most of this year.

Ok I agree technicals make sense but we cannot overrule the fundamentals and human psychlogy. I dont know how can you incorporate these two factors in your chart patterns.

Keep your fingers crossed. I am enjoying profits on positions purchased close to 1015 range. I will book profits on these at around 1100 and will increase my short positions between 1100 and 1200 on selective basis.

900 is like extreme pessimist situation....I would buy like never before if we will every see that level again. I would sell my ever other asset and borrow to last possible penny to buy stocks at those levels. I know market is not stupid as everyone has similar plans hence I think its unlikely we will see those levels again.

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