A couple of days ago, I wrote that I was expecting a rally soon, especially in materials. Well, we’re getting it. Across the board, many of those ETFs are up over 5% today. Because we still have a tough market and no classical signs of a major bottom, we may have to fade this rally, meaning sell them when they stall out. These things got so oversold and now are rallying very hard. Steel for example was around $60 yesterday morning and is no pushing $69. That is a huge 2-day move. So, it wouldn’t shock me to see a pause on Monday. But, a lot of these hit some pretty good technical areas for a rally. Let’s see if it builds on itself. For today, I didn’t make any moves and I’m enjoying the run.
I’m holding only a financial short and no other shorts now. I have a ton of cash and we’ll see if we get some Fed and/or Treasury action this weekend. If we do and the market likes it, we may see a big rally Monday. If we don’t and the market is disappointed, perhaps the fear will spike that much more giving us even more reason to buy.
Have a nice weekend and for those in Houston, be careful
Through A Trader's Eyes 
If future earnings have anything to say about the longevity of this bear market, then we’re nowhere near the end.
Today the S&P 500 index is 20% below the October 2007 high, yet the projected P/E ratio for the end of 2009 (15 months from now) is 20.93, which is highly over valued. That means the market would have to fall another 28% from here – down to 900 on the S&P – to reach the approximate historical average P/E of 15. That’s assuming of course that future earnings aren’t revised downwards even further.
Lee, that’s a good point. Estimates are also way too high and will be coming down. However, as you and I both know, markets aren’t perfect and if investors get in a good mood, they will be stocks regardless of P/E ratios similar to the 1990s. But, I’m expecting either a short-term rally that we will sell into or a whoosh down that gets stocks cheap enough to attract new buyers. I believe we’ll have a short-term rally and have more downside after that. At least that’s the way I’m playing it.
karl,
As you know, I am waiting for the next bull run to enter the market and I am hoping that it becomes more clear than not when this opportunity arises. Once again I appreciate your frequent and careful analysis.
Lee
Karl,
Since this is options expiration as well as quadruple witching, I have a question for you. Do you ever follow “max pain” on options? It is interesting to watch, and, on some of the heavier traded ETFs like SPY and XLF it has been accurate over the past couple of months.
http://www.optionpain.com/MaxPain/Max-Pain.php
According to Yahoo’s options, SPY’s max pain is at $130. The CBOE has $129. If this past week was a very short-term double-bottom, I am wondering if we won’t see that number by Friday. Anyways, I am just curious as to your thoughts. There are bearish signals out there everywhere you look, but sometimes the drop waits out the shorts a little bit.
Thanks,
Matt