Thursday, March 19, 2009

Well class, what did we learn?

Never, EVER, stand in the way of a trend for so long. I broke all the rules, bet too much, pulled the stops, and denied losses in an emotional fury.

So, where do we go from here? Markets finally pulled back from this week-long, insane rally today, but there is SO much conflicting information to try to figure out a trend right now.

1) Financials have led the rally, possibly because they reported better earnings this week. But, has the situation really improved?
2) Ben Bernanke, and the FOMC have both made announcements this week that appear crafted to jump-start the market. And while the Fed announcement to buy back 30-yr treasuries sounds like a good thing, they're going to have to print money to do it. This will cause inflation, the Fed's bane.
3) President Obama is going to be on TV tonight. I expect he will change from his "doom & gloom" speech to "roses and butterflies are coming soon".
4) There are a lot of bloggers talking about going short during the week, only to have become quickly squeezed out.
5) There's new offerings sponsored by the government help resolve housing problems, get/keep people in houses, slow/stop foreclosures, and find new ways to deal with all the bad loans out there.
6) Half the traders out there are saying that we still have months of more downside to go, or would that be just sideways chop? And I'm hearing more doom & gloom into this rally. One stated, "if this really was the bottom, then we wouldn't be asking ourselves right now if this was the bottom." THE BOTTOM is typically characterized by so much despair that people have given up on looking for a recovery.

It all just seems too easy at this point. Some want to compare this to The Great Depression, but the markets haven't really behaved the same. To match the Depression, the Dow would need to fall another 4952 points from today's close of 7400, to bottom at DOW 1846. I think we're due for a pullback, but I expect a short one for now before the rally continues to, at least, 825-850 SPX.

Then again, perhaps all this news is really just noise. Look at the charts and turn off CNBC! I just can't stop the feeling that we'll have a higher low during this consolidation, followed by more rally. Then, we might see another HUGE drop in a month or two.

I just noticed that how today's volume compared in the Bullish ETFs to the Bearish ETFs. FAS had almost 6x the volume of FAZ, and dropped 20% while a theoretical inverse drop in FAZ (if you reverse the open and close numbers) would have only been a 13% drop. I think it means the bulls are pulling out, but the bears aren't jumping in. I wonder if tomorrow will continue consolidation?

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