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Why I almost hope this pullback is significant

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May 13, 2009 – Comments (7)

Disclaimer:  I am not a short term market move expert, nor hardly, and I always presume to not know the short term direction of the stock market.  This isn't a prediction that this recent pullback will continue

On Monday I emailed my advisor (who is in mensa, BTW, and as I always say thats got to be good for me) and my former business partner the following (these are the two guys I really sit down and talk about stocks with). 

i'm calling a triple dip.  we get one of two possible outcomes1.  the market rally continues slowly up and S&P 1000 is breached in the relatively short term.  In this case we have this scenario:Q2 or Q3 earnings, or maybe Q4 dissapoint.  Panic over the economy not recovering as fast as expected sets in and we get a third dip.  not a severe one, not to 700, not a new low, but a dip nonetheless of well off the then-highs.  talk turns to how the economy isn't recovering, thigns will be crappy for years...  and the markets sink once again.2.  we get a meaningful dip here say the S&P drops 100 points and things turn pessimistic again in the short term.  in that case the market will begin a long slow crawl back up.one way or the other, we get a third dip, and thats my final word.

In my view a significant correction now will get us to S&P 1100-1200 (my tentative exist point from stocks for a time) faster than if the rally continues now.  A pullback now will be better for longs/bulls going forward if you look out a year or so. 

So while I hate to see the violent attrition in my real world portfolio - and it is violent on very negative days like monday and today - i'm basically used to the wild volatility by now (i've been up as much as 18% in a day, 3 days over 10%, and as much as 9% down in a single day this year.  I have a high average beta) and I think that if we get pretty low now that will leave me better off in 1 year than if this rally continues for a while.

That has been my contention for a while - if we get a meaningful pullback in something resembling the short term, it will set the market up for a stronger, healthier, more sustainable (and probably slower) crawl back up over the next year or 2.  If it keeps racing skyward...  we are setting ourselves up for a possibly ugly correction at some future time.

A meaningful pullback now will allow some others a chance to get in on long positions they mean to hold, allow the market to build a base for future gains, and all of that.

7 Comments – Post Your Own

#1) On May 13, 2009 at 6:49 PM, motleyanimal (89.80) wrote:

The animal spirits say that the bears must be fed. And so it will come to pass.

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#2) On May 13, 2009 at 8:04 PM, KamranatUCLA (29.11) wrote:

nothing new here. I predicted back in 2004 that dow will be at 7000. However, at that time I didn't know that the government will mess things up even more. Now I predict the dow to be at 3000. When? I don't know. Myabe in 1 year, maybe in 3 months, maybe in 5 years.

But there has been fundamental changes in our market and in the world. A lot of it is related to oil. We are running out of oil!

This confusion was expected as people get used to new realities. We need new forms of transportation, just burning oil in our 120 year old engines won't cut it anymore.

Right now oil is hovering around $45, imagine what oil prices will do to marker if it goes up to 200. 

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#3) On May 13, 2009 at 8:26 PM, portefeuille (99.59) wrote:

Right now oil is hovering around $45 ...

Oil off highs after push above $60

Signs of economic stabilization and a weak dollar boost early trading, but crude pares gains on demand concerns.

NEW YORK (CNNMoney.com) -- Oil prices held their gains Tuesday, after climbing to a six-month high, as investors weighed signs of economic stabilization against weak energy demand and record-high crude inventories.

Light, sweet crude for June delivery rose 35 cents to settle at $58.85 a barrel after climbing to $60.08 a barrel in pre-market, electronic trading.

It was the first time oil traded above $60 a barrel since Nov. 11 when it hit an intra-day high of $60.80. Oil last settled above $60 on Nov. 10, when it ended at $62.41. 

...

(from here)

I would say the Light Sweet Crude June 09 future is "hovering" around $58 ...

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#4) On May 13, 2009 at 9:35 PM, russiangambit (29.25) wrote:

If you expect a pull back, why do you choose to ride it out instead of going in cash?

I just made a not to myself about oil coming back somewhat. So, if you were holding energy stocks last summer and you didn't sell you would have to wait a year for them to come back.

 

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#5) On May 13, 2009 at 10:04 PM, 119862913 wrote:

You have my vote on that (and my red thumbs). I wouldn't mind buying more stock at new lows in the least!

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#6) On May 14, 2009 at 4:09 PM, checklist34 (99.71) wrote:

gambit:  i raised alot of cash in this recent run-up. 

But... today in real life I am in the interesting position of having more than doubled my money on stuff I manage myself in about 5 months starting from a point where the S&P was higher than it is today.  In my real portfolio I am down on ONLY some very recently added shares of BZ (most of my buying was at 40 cents, and i'm keeping the recently added ones), a few shares of WFR (I sold them today), and thats about it. 

 If I actually cashed all out I'd immediately go down 20% by moving into income tax from capital gains (more if you throw in state taxes) and ... 

I do not pretend to know the short term future of the market but to gamble that I'm going to drop 20%, therefore justifying getting back in is just too, well, gamblish for my blood. 

So when I think the market might go down I hedge by selling covered calls or dinking aroudn with options on spy.  So far I have not proven to be a very good options-dinker-arounder.  lol

If the S&P clears 1000 I will probably collar alot of my holdings for a hedge... 

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#7) On May 14, 2009 at 4:15 PM, checklist34 (99.71) wrote:

I'm also down like 10% on some sharse of RJET I recently bought.  But I'm keeping those too.  P/E of 3, forward P/E of 3, can't find any reason to believe RJET was a bad buy at 7 bucks.

I made a really good call on BZ on the CAPs game, lol.  I suck at CAPs. 

thanks for the thoughts everybody, I continue to believe you CAPs folks are going to help make me some cash by talking about oil stocks.  Oils still probably lower than it should be...

 

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