Recession over? Don’t look at the stock market for the answer
If you happen to watch this stock market and pay attention to earnings you might be inclined to declare the recession over. Even though Italy just declared theirs officially over, I wouldn’t be looking at the six day rocket ship under the ass of the stock market to say things are totally back on track. The Dow 30, S&P 500 and Nasdaq indexes are all up more than 9% since just last Monday. As I mentioned a couple weeks ago, this earnings season is the biggest in a long time, and the markets have reacted to some pretty good earnings by having a blast off we haven’t seen in a little while, right back to the recent June highs. In other words, the markets have recouped the one month sell off from the June highs in just one week (And I admit I’ve been getting hurt being short almost the whole time).
What’s tricky about the recent run up is trying to decipher whether it is truly justified by a stronger economy and stronger companies. Thinking outside the box (i.e. trading, investing and generating ideas beyond the headline “stocks up on positive earnings”) is what turns an average investor into a great one.
It’s my belief that people are chasing again, much like they did when we went from 800-900 after we came off the 666 low (I will always quote the S&P 500 on this blog). Once positive color came out from the likes of Meredith Whitney and financials showed actual profits, people began buying the market. And when I say people, I’m talking about money managers, hedge funds, etc. In this job market, analyst at hedge fund XYZ will get his ass shown the door if his returns don’t outperform the market. Money managers, hedge funds, pension funds, every kind of fund has to 1) make sure they don’t “miss” these prices in case we’re at 1,100 by years end, and 2) can not afford to be sitting on the sidelines, or worse, stuck short while the market could make an awesome move to the upside. If the market is up 10% at the end of the year and hedge fund XYZ isn’t at least up by that amount, you better believe half the desk will start preparing their resumes. When shorts cover, as many started to do once they realized we wouldn’t break the head and shoulders formation, it helped stocks rip to the moon the last six days. (The recent h/s formation we momentarily broke but could not continue lower, is shown below)
It has become an almost unanalyzable situation situation. After such a move down in the past year, it’s hard to predict in the short term what huge fund is stepping in, or who is picking last Thursday as the time to leg into 100,000 Fed Ex shares to hold for the next two to five years. Either way, there seems to be some pretty big support from buyers stepping in on the downside. I expect to come back lower before we can break 1,000. If the market defends another period of selling the way they did for the last week, you’ll have even people like me thinking it’s too dangerous to short. Remember, your bottom line is all that matters, and if chasing makes you money, go for it. I can’t quite stomach the thought yet.
User Comments
JFK
July, 2009
Earnings reports have definitely been making me money the past week and a half - they certainly don’t lie. Unless, that is, they are lying.