Archive of February 2010
Where Do We Stand?
With the recent lack of leadership in both price action and news, it's time to review the fundamentals.
- Capacity Utilization is rising, but at low levels: Neutral or Bullish
- The ISM Purchasing Managers' Index is rising and at the highest levels seen over the past twenty years: Bullish
- Initial Claims for Unemployment are down significantly from their 2009 highs, but are still at levels seen at the extremes of previous recessions: Neutral or Bullish
- The Yield Curve is as stimulative as ever: Bullish
- Temporary Help Services are on the rise: Bullish
- Average Weekly Hours just started rising: Bullish
- Average Weekly Overtime is on the rise: Bullish
- Job Openings have bottomed but have not recovered: Neutral or Bearish
- New Hires have bottomed but have not recovered: Neutral or Bearish
- Inflation is tame and deflation has been avoided for now: Bullish
- Sentiment is neutral: Bullish (supportive of the existing trend)
- Breadth is mixed: Neutral
One Jittery Market
Long gone are the days where stocks moved independently of each other based on each one's own merits. The recession left the market scarred and vulnerable to sudden drops and rallies based on irrelevant news events. Last year's steep selloff and sudden bounce sucked the conviction out of all but the strongest of investors, both bulls and bears. Until confidence and clarity are regained, the market will be prone to these correlated whipsaws and you'll have to do your best to continue to ignore them.
Respect the trend and keep those stops in place. One of these days the fundamentals will finally line up and clearly support a side, whether it be the bulls or the bears. Until then, try your best to filter out the noise.
But Then They Change The Rules
Well, you could have covered your hedges but now the Fed has altered the rules once again. The Fed raised the discount rate to 0.75% after the market closed this afternoon, saying they want the banks to start borrowing from the private market. The knee-jerk reaction so far is an ugly one with the S&P giving up all its gains for the day in a matter of a minute or two after the announcement.
Best to keep those hedges on (or put them back on if you removed them earlier today as we did!) until the dust settles from this one. I still think we'll go higher from here, but things could get ugly over the next few days.
... And We're Clear
You are now free to lighten up your hedges. Although this correction did not take us down as far as many were hoping, we did see a meaningful shift in sentiment. With today's close above resistance levels you need to focus once again on your long positions and put those shorts you were hoping to make on the back burner for now. As long as we remain above the 107 level on the SPY you'll need to control those bearish urges of yours.
It's Time to Hedge
The bulls put up a good fight trying to keep this market from rolling over, but they were finally overpowered today. Big morning gap lower followed by intense selling into new multi-month lows... not bullish by any interpretation. For the remaining long positions you have, it's time to tighten up those stops and hedge your exposure.
The bearish behavior of the market confirms the deterioration in breadth we've seen over the past two weeks. Both the NYSE and the Nasdaq BPIs are in bear territory now and signify further selling to come.
