The Greatest S&P 500 Is About To Collapse Blog In The Universe!!!!
In honor of EverydayInvestor, GMX and others alike who have done posts about the greatest blog on Earth or in the world, I give to you the Greatest Blog about the impending S&P 500 collapse in the Universe!!!!!! Hide the women and kids, everything is about to come crashing down around you!!!! Fantastic Alstry impression right?
Anyhow, getting onto things, the S&P 500 is incredibly overextended right now, so much so that is has thrown every indicator I look at completely off the scale. If anything we have been shown that this rally has been caused by weakness in the dollar and short covering. I would propose that the majority of this rally has been nothing more than stop losses being hit by traders short the market.
Corporate earnings have not been anything spectacular and have done nothing more than to highlight the inadequacies of financial analysis. Most institutions estimates have been absolutely piss poor over the past six months, either shooting way too low, or far too high. Revenue figures from the majority of S&P 500 companies have been trickling in down 7%-29% and they've been falling short of many analyst expectations. All we have seen is continued job cuts, cost reductions and when in doubt, blame the dollar for everything. This is not real growth, its passing on the problems to the next person. I also want to know what happened to the time when corporate earnings were compared to the company's OWN guidance and to prior reports? I feel like I'm taking crazy pills here for a concept that has been thrown by the wayside.
Stock options are telling the entire tale here as the put to call ratio has become increasingly bearish over the past five trading sessions. I figured that the bearish would be predominantly confined to the August and September months, but you can look all the way out into December and there is still significantly more action on the put side than the call side. Traders are trying to tell you that they expect a greater probability of downward action that upside at this point and I don't think you can ignore so many open contracts. Let's remember that options are generally not traded by small time traders and are often tools used by trade professionals and institutions.
I also want to take this time to analyze the housing start figures that were reported today. What we saw was supposedly a third consecutive month of improvements. Now I definitely see improvement, but when you are selling 1/3rd of the amount of homes you were selling last year rather than 1/4, I'd hardly call that rounds for calling a bottom. Any improvement off those levels would be relatively simple, but with more than 33% of all homes being sold in July in foreclosure, there is hardly any pricing power out there. Let's face it, the majority of wealth in this country is created through real estate and we are clearly 3-5 years out before that begins to occur again. I don't have any figures of California or Florida in front of me with which to compare, but I think these are the states that need to be used when really gauging if we've turned the corner in the homebuilding market.
And now for a smattering of technical analysis from the following two charts:
As you can see from the first chart, the S&P 500 has run into a lower channel line from its original descent which it began nearly two years ago. Also of importance, note how the S&P 500 has reacted historically to an rsi of 69 or higher. In all cases we've seen a retracement of at least 8%. Let's remember here that history is typically our friend.
The second graph shows a close-up of the past six months. The interesting thing here is if we extrapolate out the lower channel line from the lows of the rally, we get an almost perfect head bump at 980. Thats two confirmed lines, one from above and one from below that should put a dead stop to this rally. When in doubt we have an overbought condition to confirm what the charts are already telling us! Admittedly this move has me completely confounded as it should have had at least one solid down day by now, but we all know markets don't go vertical so I remain dedicated to my SPY puts.
As an added bonus and the real reason why this is the greatest blog in the universe.... since I have become Top Fool through a mixture of a lot of luck and good timing, I will open up the idea of posting my email address or AOL Instant Messenger screen name (I'd have to gauge which one is more desirable to the community) so you can ask me whatever questions you like about stocks in general. Will I answer them all, don't quite know? Will I give you 100% correct advice, probably not. What I can tell you is I will grace you with the same sarcasm as I grace these boards. I don't however hand out access to my sarcasm for free; it comes with a price and I'm sorry binve, macaroni pictures won't cut it this time. Make this blog the most recommended blog on all of Motley Fool and I will at the communities request post either my email address or AOL screen name so you can get in contact with me beyond the Fool. So 215+ recommendations ought to do it! Consider this MF Extra Credit.