UPDATED AGAIN: 300 point up (+3%) days are bad signs for the market | RED FLAGS EVERYWHERE
December 16, 2008
– Comments (15) |
RELATED TICKERS: SPY
, TWM
, UWM
This is a follow-up to my prior 4 posts regarding +300 point rallies like the one today. Unless a 300 point rally occurrs at "a bottom" it is bad news during a bear market.
Additionally those of you who are touting this rally as the new bull market probably need to be reminded that there were 4 +20% rallies from 1929 to 1932 as the market lost 80% of it's value.
Violent moves upward are one of the few dependable signs that you are in the midsts of a bear market and not a new bull market.
REPOST OF THE FACTS:
Here is a historical fact... There were 16 (up) +300 point days for the DOW in the 2000 to 2003 bear market. There were no 300 point days from 2003-2007 bull market. ZERO..... The first firm to make note of this (as far as I can tell) was a study by Lowry’s Reports.
They discovered that during the 2000-2003 bear market, there were sixteen three hundred-point up days in the DJIA. Despite these big surges, the market continued to make lower lows.That began in March 2000, and ended 3 years later in March 2003.
By contrast, this volatility was not present during the bull run from March 2003- October 2007. There were no three hundred-point up days during that entire period.
Conclusions:
1. This sort of market volatility is a harbinger of bad things to come.
2. Bear markets are fun to trade horrible to "own". For Example: I've had some of my best weeks in years year because these market swings are viscious, very technical, and somewhat predictable (from a technical stand point).
UPDATE:
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On a Technical Level - You just have to be short here
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Earlier this morning I summarized the red flags here
1. The market's rally ended right at the 50 day moving avg...
- Bulls need the market to close above the 50 day moving avg and stay above it for several days before they can trust this move.
- Bears should start scaling into shorts right here.
2. Many weak stocks had great days today +10% moves were everywhere... and that is what happens at a blow off top. Look at the homebuilders for example.
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On a Fundamental Level - You just have to be short here
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Why is this market cheap here at 15x next year's earnings... yeah we're 15x Goldman Sachs expected earnings for the S&P 500 ($56).
15 x $56 = 840 for the S&P 500 ... we're about 30 poitns above that)
Normalized earnings for the S&P 500 are probably $65 - $75 without a bunch of leverage.
15 x $65 = 975 - we're only about 100 points below that.
SO ASK YOURSELF... ARE YOU FEELING LUCKY... WELL ARE YA?
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MY FAVORITE REAL LIFE TRADES
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I shorted went short the market via TWM and I will sell my ultra long UWM tomorrow.
I am also short RYL (homebuilder) and that remains one of my favorite shorts ... it is very overvalued relative to peers.
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