I mentioned on Friday when I was hosting “The MoneyMan Report” on the Biz Radio Network that it wouldn’t surprise me to see a few up days. Perhaps even getting back 250 points of the 500 lost last week in the Dow. The S&P 500 stopped going down right at its 50-day moving average as well. So, the technician types think that’s a logical place to buy.
The question is what would be the quality of that rally. Now, we only have one day to examine this. Today. But, looking at the internal data of the rally today, it was the same thing that we’ve seen for several weeks. Extremely low volume and the rally appeared to have happened just because the sellers paused. Then, it gets to a certain level and in come the short sellers like the huge reversal last Monday. I sold a lot of positions last week and I’m moving more towards net short than I’ve been in a while. I will continue to not only sell into weak rallies but add to my short ETFs that I’ve been holding for a while. They had a fabulous week last week.
Looking over some of the leaders today, it was homebuilders, semiconductors, airlines, and recreational vehicles. The losers were energy, agribusiness stocks & gold. Are we really supposed to believe that the leaders for this decade are done going up and losers such as homebuilders and airlines are going to lead us higher? Recreational vehicles? Are you kidding me? I live near a huge dealership of RVs and I just shake my head watching that inventory just sit there baking in the sun. How many of these are they selling right now? To me, this rally today looks like profit taking by investors with big winners in energy and bottom fishers saying “homebuilders and airlines have to be a good deal at these prices”. Sorry, I’m not buying it.
By the way, in contrast to slow RV sales, I was in the Apple store in San Antonio this weekend buying a new Imac and I asked the sales guy were all those people in the store just looking or were they actually buying? He said that store alone has a budget of selling 50 new computers every day. Not Saturday and Sundays, but 7 days a week, 50 per day. That doesn’t include the Ipod sales, the Iphone sales, and so forth. Wow!
Winnebago Industries (WGO) has fallen from $37.50 to around $14 since the beginning of 2007. Apple Inc. (AAPL) on the other hand has gone from $75 to $185 during the same time frame. But, I’m supposed to believe that the market’s going to rally further with leadership from Winnebago (WGO)? Looks more like reversion to the mean.
You really have to roll up your sleeves and examine the rally or pullback every day to see what’s really going on to be successful in this market (or any market for that matter).
Since the March lows, the Nasdaq, NDX, and Russell 2000 indexes have been outperforming the other major indexes. Before then, they were laggards. These have traditionally been one gauge of investor’s appetitive for risk. With them being strong, what does this tell you about the market and where we are going next?
Good observation. The Nasdaq could continue to outperform but I do not believe the Russell will hold up. In an economic slowdown, investors gravitate towards large companies with cash that can weather the storm. Also, large companies have international exposure which you have to have right now. I think investors are buying this stuff temporarily and taking on some risk. That’s why our crazy investor indicator is showing a lot of confidence. This is temporary and I still believe rallies should be sold.