Sideways Market?

It’s hard to believe, but since mid January, the S&P 500 is actually flat.  A lot of volatility, but flat if you bought and held it.  This makes sense as our leading economic indicators we’re watching have flattened out in the last couple of months as well.  However, we’re entering a period where companies are now starting to report earnings and GE kicked off the season with crappy results.  This morning, Goldman Sachs said earnings this quarter will be “awful”.  So, the market has begun to discount the financial companies and their results and maybe those stocks have bottomed.  Now, we’re seeing the stock market adjusting down for crappy corporate profits by non-financial companies. 

But, the market is in a range.  It’s not a stock pickers market but rather it’s a sell the rally buy the dip market similar to 2005.  Two weeks ago, I was writing about the overconfidence I saw and the red flag that presented.  That was the sell the rally moment.  The market has started to drop since then and we still have a ways to go before the fear spikes high enough for me to get positive on the short term.

So, could we get more of the same?  A lot of volatility but essentially not going anywhere?  Definitely.  I’ve mentioned it would be much easier if we had a give up attitude on stocks rather than a hopeful attitude.  That would cause fear to spike really high and a real bottom could be put in.

For now, we’re probably in a recession.  The economic data will continue to come in weak.  However, at some point, as the analyst downgrades come in and stocks fall, the will overshoot.  In other words, the economy will eventually turn, profits will bottom, and stocks will have sold off more.  That will be our opportunity.

Don’t be afraid to trade but don’t fall in love with stocks here unless their hedged properly with some short positions.

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