Respect These Facts
Longer-term, the market is still in very tough shape. Just looking at a
longer-term chart of the S&P 500
(
$SPX |
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PowerRating)
shows you one
gigantic umbrella top. Notice how every big drop ended
with a big spike to the upside…only to fail miserably. Well, if you know
me, then you know that I don’t like to look so far into the future. If you
know
me, I never give targets or dates. If you know me, I am really an optimist.
But if you know me, I am also a realist.
This rally feels, acts and looks like every
bear market rally that has
happened during these tough times. You know my motto: Bear market
rallies are sharp, quick, make you want to get in, finally
suck you in…and bury you soon after. Another
characteristic of every bear market rally is that the best
part of the rally happens in very short order. I would say 1200 points in five days would qualify as the “best part.” You don’t need my opinion on
this.
Just look at the first five to 15 days off the September lows…just look at the
first 15 days of the March 2001 lows. Very simply, no matter what
happens in the short-term, please respect the fact that it
has been an enormous bear market. Please respect the fact
that even with this rally, the S&P 500 is still down
45% from the highs. Please respect the fact that this is a market that
has only one goal in mind…and that’s to take your money.
The short-term is much different. Monday’s action qualifies as a
follow-through
day, indicating a trend change of some unknown duration. All new
bull markets have had a follow-through day, but not all of these days led to
a new bull. Intraday action remains constructive. I have always been a fan of a market that is down all day…only to finish up. I would
take that pattern every day. So far…so good. More
importantly, after the latest quick and gargantuan move
up…go slow. If this decides to have legs for a few months…and
yes, that’s possible, leadership will show up in the NEW HIGHS.
Leadership will show up in breakouts on high volume. Just keep in mind what
has happened to most breakouts and please keep in mind that in
bear market rallies, the best moves are stocks that are
down the most.
Sector-wise, there is a whole load of repairing to do…but I am simply
amazed by some of the “V” type action I am seeing in
some specific names. I don’t like “V” patterns
but will still watch for a tightening-up of the charts. I
really don’t have a favorite sector because most are just moving up after
a bungee jump. I did want to point out several sectors that are showing…so
far, an inability to go for the ride. Always remember, it is easier
to isolate weakness when the market is strong. They are SEMIS,
SOFTWARE, RETAIL…which are acting horrid, HOMEBUILDERS and as a whole,
TECHNOLOGY.
I am hoping for a quieting down of the latest move. Wild swings are very
tough to play…so I sit back, relax and wait.
Until next week,
Gary