thoughts on the market with the correction at nearly 10%: still largely sitting it out
Well when I first posted that I wasn't buying much of anything into this correction yet because fear hadn't gotten really extreme a week or 2 ago... that was true.
Fear has gotten extreme now, sort of. As recently as yesterday folks at Real Money Silver, which I read every day, were ready to buy the dip and play the bounce-back. Then the market rolled over bigtime yesterday and everybody gave up.
Today there is all but no optimism over at RMS. A CNBC poll had 37% of respondents predicting DOW 5000 or lower by years end. One guy said we wouldn't even recognize america by years end. The death of the Euro is almost universally accepted as a given.
The bears aren't predicting a correction, they are predicting an outright crash. Just today a few of the bearish leaners over at RMS said "a correction is beginning" or something along those lines.
So fear is rampant now. But ... I still think its fairly new. And, as Doug Kass likes to say, the crowd usually outsmarts the remnants, at least for a while.
My list of indicators that we are at the right time to buy isn't full yet. These are:
-Kass turns bullish and starts posting optimistic scenarios (partly, but not to his usual extent). The guy has had a great track record on the dips since I started reading him 15 months ago.
-Checklist gets scared and panics, later fear gives way to excitement over cheap buys. Maybe this indicator will get weaker over time with experience, but I'm still not as scared as I was in July... But then I guess I wasn't in February either. I did get excited in February over some cheap buys like MCGC at 4.20 and all.
-Tech Ticker brings out the psycho-hyper-bears. They have begun doing so...
-my former business partner calls to talk about his dividend income stream and adds it up and repeats to himself that its more than adequate so he doesn't have to worry. check
-bears get cocky and loud, not really a check here yet.
-the fly, from ibankcoin, moderates his bearish view (never used this one before, so its an experimental indicator, but he seems quite bright).
I think we retest the flash crash lows. Dow 10k or 10kish, s&p under 1100.
The overall scenario looks about like this: earnings estimates, per S&P, for the forward 12 months are rising still after a good earnings season and stand at 85. 2011 estimates stand at 95, lowered slightly over the Eurozone crisis. Now, that would imply that the market has considerable upside between now and then if indeed estimates stabilize or continue to trend upward. However, of course, estimates always peak about when the market is peaking... Early 2008 saw very high estimates only to have the bottom fall out of everything.
Oil and other commodities have been beaten up so badly in all of this that alot of the speculative-premium has been drawn out. a $20 drop in oil probably gets it within 10-15 bucks of actual supply/demand prices. Dropping oil prices are, overall, GOOD for the economy.
The risk of a significant worldwide economic crisis, take 2, would be about this: Greece defaults, causing a banking crisis in Europe, causing a contagion, causing more sovereign defaults, causing armageddon, causing a new mega-crash. A second deflationary spike in 2 years.
The optimistic side of the economy is that earnings are good, economic readings have been good, companies remain super-lean, inventory rebuilding still hasn't happened (tremendous power in that, in my estimation, due to the current over-lean condition. There are few cars on lots, a large number of supplier to former businesses of mine are on allocation withmany products due to sudden rush in demand. They had shut off some supply, many factories and plants I am familiar with are on mandatory overtime... little hiring yet, but it has to come eventually unless we crash anew economically. and the ECRI says there isn't even a hint of a double dip recession visible in their work, they have a good track record.
So there we are. Its a more uncertain crash, and not yet as cheap, as the other corrections. But the fear, predictions, and uncertainty surrounding it may be near record levels for the past 12 months...
My game plan is to slowly buy when things hit my pre-determined targets. I bought some TCK deep in the money long dated calls today.
I am still eyeing GS and GOOG, but have acted very very little on them. I am considering adding to CNO and...
I have a big list of shares to dump that have held up during the correction, and I will be shifting into "best bets" from my boring shares of mo, t, vz, and all of those the lower we go. Casino's have also held up well and I'll be liquidating those shares (and covering the hedges I have one them) as we drift lower.
Or, as it is, tank mindlessly lower day after day...
Always remember, folks, that its corrections like these that really provide us with the chance to make money. However annoying or painful or horrible they are to watch, it is these dumps that allow big profits, in the end. The bigger the dump, the bigger the potential.
I don't think this correction is over yet, but... it will end one day. And higher than dow 5000. :)