Happy New Year

What looked to be an awful year for stocks ended up being a very strong year for stocks. As we look into the new year, we have many non-traditional headwinds that could limit investment returns over the coming years. That said, the market and the economy seem to be picking up steam as the new year begins. The recently released new car data is much better than expected and portends a strengthening economy (cars aren't cheap, credit is being extended). Due to the lack of downside preannouncements, I would expect the earnings season to be generally better than expected, but the key will be guidance and the reaction by the market to the earnings. The market posture right now is bullish, the toughest trade being short almost any asset. Although I am slightly cautious on the market because it is due for a correction, there seems to be a lack of analysts seeing a strong recovery. This is not a reason alone to be bullish but the outside the box thought process makes me think a strong recovery is what we could get. Stay disciplined.

Rally weakens

The biggest rally in the U.S. stock market in many years is starting to get a bit weaker. Caution should enter into the equation at this juncture. The easy money has been made. For the market to push higher we need things to get "better" or "good" not "less bad" Any push higher from here that leads to a break above recent highs would make this a pause that refreshes. A breakdown from here, especially if we work off the short-term oversold readings without price appreciation would cause me to raise cash. Caution is the word right now.....

Rally

Say it ain't so!!! A rally. The bad news, the spy has not ended a streak from feb 9 of not closing above the previous days high. This is the most promising action in a longtime. Gun to my head we head higher to the tune 5-10% near-term. Failure would result in further downside.

Is this the D-word?

With the market down 11 of the last 12 days, a breaking of the november 21st lows, there seems to be no hope in sight. Unfortunately my optimism on the market has been destroyed by Obama's policies that are net destroyers of capital rather than a creator of capital. Many Democrats blame the income inequality on taxes. How is this even plausible. The government doesn't pay salaries, employers do. It is scary to think that the evidence shows definitively that the net lowering of taxes in general is a spur to economic growth, while socialist policies have never worked in the real world. This market is as oversold as anytime since I have managed money, rivaling the great depression. The fact that the market can not rally at all is a result of the immense loss of capital that has happened over the past 12 months. The system would have a very difficult time recovering as is but now this increased taxation on capital will prolong the recession significantly. Although there will be trading rallies, probably sooner than later, the path is unquestionably down. The last few day have been reminicent of the summer of 2002 when all sectors came under pressure, even those that are "defensive." This was the sign of the end of the bear in 2002, hopefully history repeats. As i post this the market is up 1% with Geitner in his Q&A. Expectations are so low that even he can't take the market down so far today.

Tech and Large Cap?

The market has continued to confound the hedge funds who see an economic collapse. High oil, terrorism, inflation, subprime, housing are among the most common reasons to short this market. These are all things to be concerned about but not short this market. The hedgies are now in some of the largest short positions in history, all as the market hits new high after new high. I believe this market is due for a correction, but with the wall of worry, it may just not come. We are seeing the same old leaderdhip lead this market; Energy (some cracks), industrials, materials, etc. But now we have the large caps and technology acting better. We are heading into the favorable time of year for the techs, so this could be just what the market needs for another leg higher. Stay tuned and long in this very strong market.

Rally In Jeopardy?

After a suspicious reversal to the downside yesterday, Wednesday, May 23, the market again opened to the upside on a strong durable goods number and continued to add to gains as the strong new home sales data was released at 10. These gains quickly reversed. This is day 2 of a heavy market. Because of the market momentum I would expect a much more volatile market, very similar to the nineties, to start to emerge. This would mean more buy on the dip mentality rather than an abrupt end to the rally. It should be noted that Greenspan had to open his mouth from retirement to voice his concern about the unsustainable move in the Chinese stock market, almost an "irrational Exuberance" repeat. The IBD notes 5 distribution days for the Nasdaq over the past month so this rally certainly has its cracks. I would look to raise some cash if the market can't prove itself into the close. No more than 10% should be necessary at this juncture.

Rally continues

This stock market rally continues unabated, along with the skepticism to fuel further gains. The earnings season is nearly complete and corporate America has continued to hit the cover off the ball, blowing away the tepid estimates set by the Wall Street herd. The volume is lacking in the current days trading, which may or may not be a warning sign of some future profit taking. Also the vix has traded down during the session along with a put to call ratio (.76) that is weaker than recent rallies. The Semis and the Nasdaq are showing signs of outperformance although they are one of the only remaining groups with overhead resistance/ holders of stock at higher prices. I expect this rally to continue, but with increased volatility. Expect further gains with corrections/ shakeouts that resemble those we experienced in the mid to late Nineties. The new hedge fund kabol has short interest at all time highs, just the thing needed to keep fueling a sustained rally. Also the retail investor has not embraced this rally, apparently still licking their wounds from the tech bubble. Speaking of tech, I would expect growth to return to the sector in the coming years as many companies try to continue to cut costs and keep productivity high, all technology driven. Many maga techs are now at reasonable valuations compared with the market and compared with their potential growth rates going forward. This is by no means an endorcement of an all tech portfolio, but a universally hated group can be a source of superior investment returns. Hopefully the next post won't be so far in the future..........