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Things may be bad, but we won't have a correction....

Recs

37

June 13, 2011 – Comments (20) | RELATED TICKERS: LNKD , FAZ

The Dow is down about 8%.  The definition of a correction varies slightly, but there seems to be concensus that it's a dorp of 10-20% in a relatively "short period of time". 

Since I'm a PermaBull in a depressed mooooooood....I'll take my loophold if needed, but I don't think I'll need to split hairs on the period of time.

IN several comments/pitches I've called for a down cycle.  Unfortunately, I'm not good at making money on my "gut" down calls.  I do make 1-3 calls on Bear ETF's here on CAPS for any day the DOW is down 100+ points.  Some "FOOLS" call ETF's cheating, but I call it marking the levels or dropping some bread crumbs that  I can pick back up some day in the future and have a sense for "where we are at" and where we've been.  I do find some high beta equitie to "put", but again not with the conviction I should have.

I spent most of the weekend pondering how much further down we might go.  I was actually rooting for a much harder down day on Friday.  This six week down cycle could use a really hard "capitulation" day, but by metrics we didn't quite get it.  I don't have any scientific data, but I'm looking at another down spread out over a few weeks of at most 3%.....more likely some oscillations pretty near where we are now with a few down days interspersed with buying days. I think tomorrow, Tuesday, will be a buyers day and we will close the week up, breaking the six week drag.

Fundamentally, we're in a mess. Nothing has changed to speak of since my gut was calling it down.  Economic data will be weak for awhile.  The rose has faded considerably the last few weeks as negative news finally moves the markets into a negative (down) direction.  Still, if you want to live life in negativity, you all have Alstry for that.  You too, if you want to be depressed enough can spend two years with your money in a mattress while you missed the biggest rally in your life time and then "milk" nickels off of anyone you can "steer" to your website with links to "sour milk" with "udderly" useless, out of context headlines.

I think we're in for a long summer.  I'm pretty much against there being a double dip and I've ruled that out of my investing thesis. I also don't see much more down than up in general.  Overall there is still money moving into the market. Banks/Investment firms continue to manipulate it and report out how they take the money from the rest of us on a daily basis.  While things are not as great as people, (especially those who will be trying to get reelected) would like us to think we are still holding our own and baby steps forward are out numbering those backwards. 

I think the FED will continue providing some promise.  The government, especially the President will talk things up. Unemployment may have stopped dropping on the last report, but it's still better than it was two years ago by almost a full percent. People are still spending.  Hard to say if oil keep below $100 and what the value of the EURO, China, US dollar will do. 

Yes, pick any metric you want and we have "problems".  The Earthquake in Japan was as big of a problem as you are going to find and we didn't predict that one in our whining.  The supply/demand issues are just starting to manifest as the little buffer we had continues to be used up and recovery remains slow.

I was 100% cash in my retirement the last six weeks. I went 15% back in COB Friday.  I still don't have a feel that the risk reward is much better than when I jumped out.  My premise when I moved it to cash was that the best the markets might gain was 2-3% while I was "benched"...the most they could loose.....?? We'll I'm a perma-bull, but I wouldn't have been surprised at 15% total.  In my trading account  I'm looking for bargains, but again, I can't get much conviction, but there are a few that are 15-20% cheaper than they were a few weeks ago.

I think we're in a new phase.  The "junk" is finally becoming less tasteful to the speculators. The company's that hide thier loses in huge cutbacks, drops in inventory, aggressive receivable collections, refinancing and any other tool they could find are running out of pockets.  You can can trim fat from pretty much any budget, but there are limits if you're a business producing new products, stocking what customers want, and giving them the service they are use to.

Equities with outlandish Forward P/E's are also starting to correct.  There are few company's with sustainable margins and a moat that warrant the buy-in and several have taken 10-20% one day drops after earnings and weak guidance.

I think we have some bargains showing up.  I think they will be found in company's that were not as heavily speculated on the last year. 

Part of what makes me think we might be bottoming is that while I didn't see capitulation this past Friday..I do see some of the Top Fools gaming by upthumbing BEAR ETF's and downthumbing BULLS.  Those who think using ETF's are cheating didn't notice or don't recall the top fools who got stuck bag holding their BEAR calls with ETF's. If the market drops sharply then those ETF"s are clearly a good play that will net you quick points/accuracy. IF the drop is not quick the decay will eat you before they drift into close range.   My bottom call is partially seeing the "capitulating" thumbs here on CAPS.   One thing I've learned about trying to call the market.......it will make sure you are wrong more times than you are right!

Disclaimer, if I knew anything, would I be posting here?  ;) 

Signed a PermaBull wondering whether to wake up from his summer nap and roam around a little or if he should go back to sleep for the rest of the summer!

TSIF  (The Sky is not Falling Today...but Tomorrow's another day).

20 Comments – Post Your Own

#1) On June 13, 2011 at 11:05 PM, portefeuille (99.65) wrote:

Well, the S&P 500 index does appear to enjoy spending part of the summer time below the trend channel of the current rally (see this post) ...



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#2) On June 13, 2011 at 11:14 PM, TMFBabo (100.00) wrote:

Why does it have to be all or nothing? I think there's a chance we have a correction.  As such, I would not go "all in" or "all out" - I prefer to be somewhere in the middle.  What I would prefer to do is sort of like hedge funds having a moderate net exposure to the market.

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#3) On June 13, 2011 at 11:17 PM, TSIF (99.96) wrote:

As it did the last two July-August periods! ;)

Lazy S&P in the summer time....I just am "hopeful" it doesn't stray too far....it might be hard to get it back inside of it's "fence" if it strays too far!

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#4) On June 13, 2011 at 11:18 PM, portefeuille (99.65) wrote:

It is just another boring business cycle, at least looking at the "sentiment in German manufacturing" ...



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(from here)

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#5) On June 13, 2011 at 11:37 PM, TSIF (99.96) wrote:

TMFBabo, I fully agree on all out being the wrong answer for investing. Even though the last three years don't support it, being in over the long run has proven better than being out.

I'm never all out in my brokerage account, so "in total" I'm never all out.   I don't treat my brokerage account the same as I do my retirement fund.  I guess I should probably ponder on that one. As a Perma-Bull, even one particular about the grass he eats and who doesn't mind a nap from time to time, I suppose it's contradictory to be "all out", but I'm not all out of the market in general. I'm usually shopping very hard on down days with my brokerage funds.  Some of which I do hold "long". 

   In my retirement, I guess I don't feel that my selections are well managed. When they take hits, they seem to get hit harder than the market.  I seem to have been 10 '08 and 3 '09'd with my retirement fund to the point that I don't feel like I have an option other than all out or mostly out when my gut rumbles. Even if it proves to be indigestion.  I'm still growing it by regular deposits and daydreaming about retirement when I'm napping!  ;)  Probably over cautious, especially for a perma-bull and I'll have to analyze my play a bit more.  Overall, I've grown it much better with periods of rest.

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#6) On June 14, 2011 at 9:21 AM, MoneyWorksforMe (< 20) wrote:

The 20DMA just recently crossed the 50DMA. The last time that occurred was in May of 2010, immediately prior to a significant market correction.

I think we definitely see the S&P hit the 200DMA at 1250, which is approximately 3% form where we are now...

However, over the next few months, I have high confidence, this correction goes much further, resulting in a 14-18% correction from the top. 

Signals for when I will begin turning more bullish is when the 50DMA decisively crosses the 200DMA, and the fed begins to suggest more easing. Hypothetically I think this happens around S&P 1150.

My question to the bulls is: why should the market fair any better than it did during the May-July period of 2010...? 

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#7) On June 14, 2011 at 9:36 AM, TSIF (99.96) wrote:

Good points MoneyworksforMe, 

I tried some TA as well which is part of where  I got my 3% max more correction.  1250 is only about 1.5% from the 1270 we closed at yesterday.  I certainly wouldn't be surprised at a mostly sideways movement with some down trends... the question of "correction" is the movement "over time" and what that means.

The market does move with some historical waves, but each cycle is different.  If it was a carbon copy wouldn't that be nice for traders.   I think the big market movers will ensure there are no perfect patterns. Macro economics, world events, and government interventions are also not in a "perfect cycle".

Why should the market behave the same?

The reality is that we are NOT as bad off as we were last year and while we may be impatient with the recovery and while we may get well ahead of ourselves from time to time, we are slowly correcting.    Unemployment is high, foreclosures remain high, Greece will default, but overall, we'll struggle through and not enough people/investors/speculators will bury their money in their mattress to pull us back down.

Either way, since we have no perfect cycles.....it's all "guess work" using whatever metrics you favor.

Good luck!

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#8) On June 14, 2011 at 10:27 AM, MoneyWorksforMe (< 20) wrote:

 TSIF,

"The reality is that we are NOT as bad off as we were last year and while we may be impatient with the recovery and while we may get well ahead of ourselves from time to time, we are slowly correcting.    Unemployment is high, foreclosures remain high, Greece will default, but overall, we'll struggle through and not enough people/investors/speculators will bury their money in their mattress to pull us back down."

This is where we fundamentally disagree. The fed has had the pedal to the metal for over two years now and where do we stand? 1.8% GDP and 9.1% unemployment, and a housing market still in decline. The direction and rate of change of these data are even more concerning. And the reality is these pro-growth fiscal and monetary policies are nearing an end.

Concerns over the national debt and budget deficit are growing daily, and are far greater than at this point last year. More tax increases and public sector layoffs to come. YOY inflation is much higher. The $800 billion stimulus is over and done with. You mention Greece defaulting, but that's not even the tip of the iceberg in terms of global growth concerns. Japan is contracting. Europe is growing slower than at this time last year and is now tightening. Emerging economy's, unlike at this point last year are slowing due to aggressive tightening and higher inflation. 2010 was a better year for the U.S. business cycle, as most companies still needed to rebuild inventories following such a steep fall-off in unintended investment during the recession. The world is trying to cool off while the U.S. is still trying to heat up. This puts us in a very precarious situation that is unique with respect to the last few years of the "recovery".

"Either way, since we have no perfect cycles.....it's all "guess work" using whatever metrics you favor."

I am not inclined to call this "guess work" per se. I agree none of this is certain; however, this is not to say that it is impossible to draw reliable inferences or hypotheses on the future of the economy and the stock market in general.

Good luck to you as well. 

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#9) On June 14, 2011 at 10:55 AM, TSIF (99.96) wrote:

"And the reality is these pro-growth fiscal and monetary policies are nearing an end."

Not sure if I agree with that, the Feds won't stay idle, but I do agree that we are going to go through some periods of government belt tightening and since the government is such a huge portion of our economy then that will definitely 'hurt'.

I agree with much of what you are saying, and I don't see any roses blooming.  There are numerous other examples of negativity besides those we both cited.  Once could go on and on in Alstry fashion and it would be hard to fundamentally argue the market goig up because things are improving.

I do agree things are "slowing" and that makes people unhappy and the markets volitile.  Overall, those who capitulated in Oct '08 and March '09 and rode out of the market for awhile were sorry. WE are definitely becoming more of a trader than a buy/hold society, but think we can do better "playing" the market than stuffing the mattress.

 I don't "think" however that we are destined to move backwards. (Marketwise).   The herd is hard to predict. It could run off the cliff, but it could be content to graze, even if the grass is a little brown and not quite as tasty.

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#10) On June 14, 2011 at 11:23 AM, Momentum21 (76.04) wrote:

I would contend that this is what slow growth looks like with such horrific memories in our not so distant past. 

The "trader society" you refer to is probably creating more volatility in the day to day picture. No one wants to be caught behind and feel taking money off the table (at the end of the day/week/month) reduces risk. This is only true if you get out and stay out...trying to find our way back to the trail is usually when we throw our money in the toilet. 

I say we stay within Porte's channel this summer and move upward from here. I think it is more likely that we stay north of those support numbers that everyone is keying on...

But who really knows, right? : ) 

 

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#11) On June 14, 2011 at 12:29 PM, anchak (99.87) wrote:

TSIF....Nice post my friend!

 

And the right thought process.

 

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#12) On June 14, 2011 at 12:58 PM, PhulishMortal (< 20) wrote:

I'm really enjoying the debate on this thread. 

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#13) On June 14, 2011 at 1:13 PM, EnigmaDude (84.94) wrote:

I tend to agree more or less with TSIF on this point.  I see the market moving sideways for most of the summer and then possibly resuming an upward movement again in the fall.  I don't foresee any huge correction but I don't think there will be much upside from here either between now and the end of 2011.  It's a traders market for sure but I plan to hold onto my long-term investments (GE, INTC, MFA, PNNT, AINV, SGU) and will look to add to those positions if there is a big dip.

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#14) On June 14, 2011 at 1:31 PM, MoneyWorksforMe (< 20) wrote:

In a bull market you ride the escalator up and take the elevator down.

Recent market behavior seems to indicate the opposite:  we are taking the escalator down and the elevator up.

I increased my bearish positions this afternoon, so I'm putting my money where my mouth is. 

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#15) On June 14, 2011 at 1:47 PM, MoneyWorksforMe (< 20) wrote:

 TSIF,

"The herd is hard to predict. It could run off the cliff, but it could be content to graze, even if the grass is a little brown and not quite as tasty."

I couldn't agree more with this statement, in so far as you take the grass to mean news as oppose to expectations. Sheep will be okay until the news begins to affect their expectations.

Everyone more or less knows what is happening in the world, at least on the surface. But to discern the effects of this news on the economy going forward is the key objective in determining market behavior. The negative pressures and potential negative risks, which are many, are not being realistically perceived in my opinion. And no, this current context, or one similar has not existed the entire stock market rally.. My conviction is expectations are still too high at this juncture, and that will cause the market to continue to sell off.

I want expectations to sink before I turn bullish... 


 

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#16) On June 14, 2011 at 2:39 PM, TSIF (99.96) wrote:

 MoneyWorksforMe,

Again good points.  I find it harder to bet against the market than for it.

I want expectations to sink before I turn bullish... 

Which is why I was actually hoping for capitulation, but I don't think the inflection points will bet that clear moving forward. 

Everyone more or less knows what is happening in the world, at least on the surface.
Ageed. We have enough talking heads that I think the possibilities are known. The question is what will investors do about it.  We have lots of calls for a double dip, a new recession, inflation, stagnation, etc.  I just think the market will "give up" trying to figure out what all that means and mostly tread water as long as the big brokerage houses don't get too ansy.  I don't think it's in thier best interest .... this time. Of course when the sheep want all their money out, they have little choice. My point is that I fully agree we are somewhere between everyone knowning what to expect and expectations too high (the market). I just don't think the markets are going to "do anything" about it.

Momentum21,  agree also....stay in the channel.... "follow the green line"! ;)

Anchak, Thanks!  What thought process???  ;)

EnigmaDude,  thanks, and agreed.  Although holding my GE seems to be bearable,  F has me rethinking myself again.  $2 Billion lawsuit....I didn't see that one coming!  :(

 PhulishMortal  Thanks!  Nice Handle.  I thought the boards were getting dead or turning to Zombies for the summer until I saw over 1000 calls made on LinkedIN in such a short period. There are certainly some players out there, even if they are dozing in the summer sun.

 

 

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#17) On June 14, 2011 at 2:44 PM, TSIF (99.96) wrote:

Ooops.. Now we are in trouble. I see Bernake is speaking again...so much for a good day to churn some picks in my profile!  ;)  S&P 1290.11  Let's see how bad he hits us this time!!!  ;) 

If we hold this level then we may close green for the week.  IF we start to drop after he gets done then we're "in for it again".

The Bernake Effect should show how strong sentiment is.

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#18) On June 14, 2011 at 8:31 PM, awallejr (79.57) wrote:

why should the market fair any better than it did during the May-July period of 2010...? 

From a long term perspective why should this matter?  People know me as a permabull too, having championed the fight against many a bear over the years.  But my view is as an investor looking for companies I think are worthwhile investing in.

I am all about accumulating wealth, and you don't really do that in trading unless you get really lucky and hit the jackpot.

Right now I have created a nice portfolio that generates a very nice income stream.  When the market dips I add to that stream.  That is what people should be doing, taking advantage of these corrections to add to their positions.

There always seems to be a black swan event every year.  Last year was the BP explosion, this year Japan's tsunami, and one manmade, the August 2 debt ceiling deadline date.  And it is the last that will overhang on this market more than anything for the next couple months.

The recovery has been tepid so far and for good reason, a tremendous housing bubble was created and financed recklessly and with high leverage that, once, burst, nearly brought the entire financial system down.   You don't get passed that quickly.  It takes time.

You also have the whole pendulum swinging too far the other way issue.  While we had reckless lending prior to the crash, we now have extremely tight lending now.  In the end it really are the small and mid caps that create the new jobs.  But financing isn't going into their hands to create those jobs, since banks are now risk averse, and there are simply too many mixed signals out there by Washington, so coporations hold back.

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#19) On June 14, 2011 at 11:43 PM, MoneyWorksforMe (< 20) wrote:

"From a long term perspective why should this matter?"

Uhm even if you're long it should matter. You may not be interested in selling anything should the market fall, but you would certainly want to be able to buy as much of whatever it is that you already hold when it goes on sale...Isn't that the point of going long in the first place? Buying more on dips? Well a correction I suppose is a significant dip. If you had the conviction that a substantial correction could be coming would you not try to raise more cash in advance to buy more at a deep discount? 

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#20) On June 15, 2011 at 12:42 AM, awallejr (79.57) wrote:

Well that is what I use the income stream for.  I just average cost in when things get cheaper.  But when the corrections happen they happen. Doesn't matter if in May or October.  Yes some corrections may be deeper than others, but heck if I can know when that will be until after it happens.  I don't raise cash through selling unless I no longer like the stock due to a change in my thesis for buying it.

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