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RVAspeculator (28.02)

S&P percentage gains on a per week basis during this rally…

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April 19, 2009 – Comments (15) | RELATED TICKERS: SPY , IWM , QQQ

Look at the “percentage gained” over this 6-week rally and see if you notice a trend…

Week of     Started Week  Ended Week  Points gained  Percentage gained
13-Apr-09      856.91              869.6          12.69                  1.48%
6-Apr-09        839.75              856.91        17.16                  2.04%
30-Mar-09      832.98              845.61        12.63                  1.52%
23-Mar-09      803.24              832.98        29.74                  3.70%
16-Mar-09      758.29              803.24        44.95                  5.93%
9-Mar-09        680.76              758.29        77.53                 11.39%

Gains have been getting weaker and weaker.   Most of this rally all took place in the first 2 weeks.

Also some "must view" links for this upcoming week:

1.  Percentage of stocks above the 50-day moving average, multi-YEAR high:
 http://stockcharts.com/h-sc/ui?s=$SPXA50R&p=W&yr=3&mn=0&dy=0&id=p24812634319

2.  Retail traders sentiment is now OFF THE CHARTS bullish because we eeked out another measly 1% rally last week.
http://www.sentimentrader.com/

3. Put-Call ratio is 0.56, multi-year low.   Traders are gorged with calls and hold little downside protection…
http://stockcharts.com/h-sc/ui?s=$CPCE&p=D&yr=1&mn=0&dy=0&id=p79337359546

4. Since the rally started on March 9th, there have only been three 2-day corrections and ZERO 3-day corrections.  A big run up with no pullback leads to “weak longs”.  The longer the rally goes on, the more momentum, non value driven, short term traders get on board.   These traders are fickle.
Although I cannot tell you the day this bear market rally ends, I can tell you that we will wipe out all of the piddly gains over the last 3 weeks of this rally in just a few trading sessions....  what happens after that pullback is more up in the air.  (IE:  If we are just going to make a higher low than 666 or something worse)

Richard Russell:  "The scariest declines in bear markets are typically the ones when investors think they are making progress and recovering their losses, only to see stocks go into a new free-fall.
That cycle of decline, followed by hope, followed by fresh losses, is really what ultimately puts a final low in place. The final decline of a bear market tends to be based on “revulsion” – a growing impatience among investors who conclude that stocks are simply bad investments, that the economy will continue to languish, and that nothing will work to help it recover. Revulsion is not based so much on fear or panic, but instead on despair and disillusionment. In a very real sense, investors abandon stocks at the end of a bear market because stocks have repeatedly proved themselves to be unreliable and disappointing.”


Good analogy for what is going to happen to this rally below:

http://www.youtube.com/watch?v=uHz2xCV64n8

15 Comments – Post Your Own

#1) On April 19, 2009 at 8:11 PM, russiangambit (28.89) wrote:

Oil had a calssic bottom. At $110 - $120 people were saying it is a healthy pull back, at $80-90 people were saying it can't go any lower. At $60-70 they were saying it is unprofitable. When it went below $45 nobody cared anylonger. When it finally bottomed and reversed, there was no huge hurrah that it is time to jump on bandwagong again. It has been around $50 for weeks now and nobody says you must invest immediately or risk missing a rally.

When the bulls are no logner afraid to miss the bottom and are not in a hurry to jump in on a rally, then it will be the bottom. Bottoming is a process, it is devoid of high emotions and exuberance. At the bottom the pain of loses has already dissipated a few weeks/ month before, it no longer hurts as much. Therefore there is no need for immidiate retribution. Have we seen something like this in stocks? Not yet.

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#2) On April 19, 2009 at 9:13 PM, RVAspeculator (28.02) wrote:

Russian...

I agree 100%, no capitulation at all..  No "give up" and everyone is still looking for the bottom.

I did call the bottom in Oil though, and only once...  :)

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=121461&t=01001808419327792238

We will see if that bottom holds (for oil) but I suspect it will.

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#3) On April 19, 2009 at 9:51 PM, checklist34 (99.05) wrote:

and all the bears are still certain ... 

 

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#4) On April 19, 2009 at 10:30 PM, RVAspeculator (28.02) wrote:

Checklist...

I was a bull until last week if you look at my blogs and picks.

The point of my post is the last 3 weeks of this rally are equal to half less than half of the first week of this rally.  Really slowing down and losing steam. 

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#5) On April 19, 2009 at 10:38 PM, RVAspeculator (28.02) wrote:

Look at http://www.sentimentrader.com/ in my blog post and the put call ratio...   When Put/Call gets to these levels its hard to say "all the bears"   :) 

Also look at the AAII investor sentiment....    March 28th there was 28% bulls and 43% bears.  April 14th it was 43% bulls, 34% bears... 

The retail trader is in a bullish frenzy right now.   Its been YEARS since the Put/Call has been to this level.  

Trust me, im not Alstry, when the Put/Call gets back to 1.5 again and we get back to 40%+ bears I will be buying again.

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#6) On April 20, 2009 at 9:40 AM, Rehydrogenated (34.11) wrote:

I'm going to say this again...THIS RALLY ISN'T OVER UNTIL THE GOVERNMENT SAYS IT IS OVER

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#7) On April 20, 2009 at 9:47 AM, outoffocus (23.96) wrote:

When it finally bottomed and reversed, there was no huge hurrah that it is time to jump on bandwagong again. It has been around $50 for weeks now and nobody says you must invest immediately or risk missing a rally.

And thats when I got in.  I bought an oil etf right around when oil was still in the 30s. The same thing happened last September to gold. Gold bottomed somewhere in the 700s.  It hasn't seen that number since.  At that time I bought gold miner stock.  When I'm convinced the stock market has bottomed I will resume actively investing.

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#8) On April 20, 2009 at 10:09 AM, bigpeach (27.84) wrote:

RVA, surely you don't see "slowing down" from 5-10% weekly gains as a bad sign. That pace would have gotten us back to S&P 1500 in a matter of weeks. A "measly 1% rally last week"? That many not seem like much right now, but it's still outstanding performance, and far greater than is sustainable. Let's not allow the last 6 months of volatility to warp our historical perspective.

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#9) On April 20, 2009 at 10:54 AM, RVAspeculator (28.02) wrote:

Well, there goes the last 2 weeks worth of "rally"... Gone in 2 hours.  

Momo players are bailing in droves.

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#10) On April 20, 2009 at 10:58 AM, farmnut1985 (< 20) wrote:

Lol, they are bailing ship today

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#11) On April 20, 2009 at 2:36 PM, buildgreen (< 20) wrote:

any thoughts on a weak rally tomorrow?

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#12) On April 20, 2009 at 4:24 PM, RVAspeculator (28.02) wrote:

I am an intermediate term swing trader and NOT a day trader so I never know what tomorrow will bring, I don’t even try to figure that out!  :) 

 

What I do know is I went short last week and I am NOT looking to cover anything yet.   First I am looking for 800 to see if that holds on the S&P.   If that falls I am really going to get pretty cautious at 750.  If that falls I think a retest of the lows is in order…   I’m going to let the market tell me when to get out of my short positions, but I think today was just the wake up call for the bulls.

 

3 weeks of S&P gains gone in one day…  I guess I was pessimistic when I said: 

 

“Although I cannot tell you the day this bear market rally ends, I can tell you that we will wipe out all of the piddly gains over the last 3 weeks of this rally in just a few trading sessions”

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#13) On April 20, 2009 at 6:23 PM, buildgreen (< 20) wrote:

I hope you post more as teh weeks action unfolds. Just plain old good reading.

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#14) On April 20, 2009 at 6:56 PM, matttheboatman (< 20) wrote:

Great call based on good research! RVA your advice is needed.  I've been a bear since 2007, but I have a general bearish theory that the recession and the bank's problems are all symptons of the real problem. The real problem is falling real estate values. But, my theory is no longer true if prices quit falling and with mortgage interest rates below 5%, I think the fall is over. If I'm correct and real estate quits falling, and the symptons of same go away, is the bear market over?

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#15) On April 20, 2009 at 11:27 PM, RVAspeculator (28.02) wrote:

Buildgreen,

Thanks...  If we do get a rally, 840 was an IMPORTANT resistance and support level.  I would watch to see if the market can break above 840.  I would think IF there is a rally that is where it would stop.  We might just go right in the crapper and not even try to push back to 840.

MatttheBoatMan,

I agree with you that the real problem is falling real estate values.   I disagree that the fall is over though.  I could write a whole blog post on why I believe this and maybe I will, but for right now this is what I am looking at.  

They key to knowing when real estate prices will stop crashing is inventory.  As of last months report (for Feb.) there were still 9.7 months of inventory for sale.  A normal level is 5-6 months.

We will get the data for March this week but until you see inventories come down prices are going to keep falling.   The median existing home decreased to $165,400 from $195,800 in February a year earlier.  That is NOT a slowing of decline, really it is an outright crash.  As you know from stock trading, picking a bottom in a crash is tough work!   :)

Anyway, unemployment has just started to really heat up just over the last few months.   I think we first saw the "overvalued" part of the Real Estate bubble come out...  now we are going to get the economy (job losses, etc) dragging down homes yet again.   If I had to guess I would say I believe real estate has another 20% to fall and the bottom could be put in next year.

 

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