Wednesday, May 6, 2009

The Rally Roars On!

Stocks continued to soar today as the market cheered the "whisper numbers" that leaked out around the stress tests.

The financials took a rocket shot after sweating out an inaccurate news story around BofA losses that came out of The New York Times last evening. BTW, I am very disappointed with the reporting by the times on the BofA story last night. Make sure you have all the facts before you run your story. Its no wonder they are bankrupt!

The collapses on some of the leveraged ETF's have been remarkable: FAZ(3x short financials) is down to $5! SRS now sits at $20! The rally we are watching here is something that surely will be written about in the history books.

One thing that David Rosenberg noted today in his daily update was that back in the depression, the S&P bottomed in July of 1932 and then proceeded to rally 73% over the following 3 months before once again touching the lows later on.

Is history repeating itself here? I firmly believe so but every bear market is different. However, the only scenario that you can compare this meltdown to is The Great Depression. Its the only other time is history where we saw a debt bubble that was over 300% of GDP.

Therefore, I still believe this is a bear market rally circa 1932. New bull markets don't occur this quickly after what we just went through.

Let me post this reminder of how violent the trading was in The Great Depression as the market found its bottom:

The fundamentals haven't changed folks. The consumer remains weak. Housing is still in the dumps and is continuing to deflate. The economy is still bleeding jobs albeit at a slower pace. The market has been moving higher as the data continues to come in stronger than the previous month/quarter.

Well you know what folks? The last month/quarter was one of the worst ever so thats not saying much. The patient can only bleed so much before it loses its pulse.

This all being said, the Fed is in an all out war against deflation and the banks are now allowed to basically write their own rules. Short term its hard to bet against this combination.

Bottom Line:

The 960 area on the S&P is an interesting area to short because it represents the 200 day moving average. I had said earlier this week that the 950-1000 area on the S&P would be a nice level to place some SMALL bets on the short side. Let me repeat myself: SMALL.

I think we are seeing the same violence on the way up that we saw on the way down when we collapsed last fall. Perhaps we need to rewrite the old saying and change it from "The bigger they are the harder they fall" to "the harder they fall the bigger they get!"

My guess is the next retrace will take us back down with the same violence. This is why caution is a must here.

This market is nothing to mess around with folks. Step to the sidelines for the most part and just watch in awe.


Won said...

Hi Jeff,

You are right the fundamental hasn't change and I too don't trust this market. But no need to fight the market. Just get long in this market until the music ends.
Trade the momentum, not the fundalmentals. We are basically getting free money. Enjoy the wild ride.
(BTW: Lots of good setup showing in under $5 stocks. Many breaking out of down trend.)

PS: I love reading your blog every night, great insites. Thanks jeff.


Jeff said...



Glad you are liking the blog.

Tough to get long at this point after such a rally.

I don't have the time to daytrade these trends due to work.

Not sure it works in a market like this anyway because the rips are so violent. I've watched so many bulls get slaughtered last fall and then so many bears get slaughtered since March.

Sounds like you found something that works so enjoy the ride. Sounds like you are making some nice dough on this rocket ride higher.

My best trade was going to cash at DOW 14k. Throwing too much into this cesspool is just too risky for me.

Best of luck


Macroanalyst said...
This comment has been removed by the author.
Macroanalyst said...

I agree with riding this trend. It may be prudent to start using collars to protect against downside risk.

Jeff said...


I agree.

I just hope everyone is careful here. Mania's are never healthy and this market is slowly turning into one.

This site will always be a place where you can get sound advice based on fundemantals.

When you are confused and need to get back to basics this is a good place to stop by.

If you are looking for trading advice many other sites like the evil speculator and the ticker forum are much better places to be.

The advice you get here will always focus on capital preservation and macro analysis versus trades.

I think speculation in a market like this should consist of 10% of your portfolio.

I love the trader feedback. Keep it coming!

Gary said...

Another good post Jeff. I'm planning to dip a toe in on the short side tomorrow. I think that there is a chance for the market to stall here or even turnaround before the week ends.

PS - Tight stops.

Anonymous said...

Never let an opinion get in the way of making money

Jeff said...



I agree and good luck man. Things look very toppy here. Thats the right side in my view in certian parts of the market.

Tech looks VERY toppy to me. The QQQQ's were only up a penny and Cisco sunk AH. Disclosure: I own some June 29 PUTS on the QQQQ's that I bought a month ago.

I would avoid financials on the short side here because you are fighting the stubborn Fed.

Eventually this will be an enourmously profitable trade but the speculators have gone hog wild here and who knows how long the bullishness lasts?

ES -5 here as I type.

Jeff said...

post up around 7