Reset

It feels like we’re running out of gas over the past few trading days.  Some will say it’s just lackluster volume due to the end of the year and the holidays.  Some will say we’re headed straight back down and we couldn’t get enough umpf to continue the rally.  I say we’ve had a nice rally since November 21st and we’re working off being overbought by just moving sideways.  Remember what happened the last two times we rallied over 15%?  We almost immediately had selloffs that took us to new lows.  This time all the oscillators I watch are resetting without the averages really going down.  They’re drifting down but we’re still not seeing the overwhelming selling that caused us to go to new lows last month.  So, that’s constructive.  I talk about these oscillators quite a bit and the reason is because markets don’t move in any one direction too far without at least pausing.  I watch a lot of oscillators that go from bottom to top and back again.  It’s like a pendulum.  Sometimes overbought markets stay overbought and oversold markets stay oversold.  But, generally, prices move with the oscillators.  So, when we get overbought, the oscillator goes down along with stock prices.  This time, it appears the oscillators are falling at a faster rate than the prices.  

Do you remember the bull market in the 1990s?  We’d go up 10% on the averages, then the oscillators would go to the bottom but prices would just move sideways, then we go up to another level.  I think the market could do that in the first quarter of 2009.  I want to make myself clear that I still don’t believe we’re in a new bull market, I don’t know if the economy will bottom in 6 months.  But, I’m talking about a trading rally that can take us into the spring perhaps.  But, as always, we’ll see.

Bonds

I’ve been discussing high yield bonds on the radio in the past few days.  We’ve seen a huge run in LQD which is the ETF for investment grade bonds.  I took profits on this last week and established a position in HYG with the proceeds.  HYG is the ETF that tracks high yield bonds.  In the last week, it’s been on a tear.  I think it has more upside plus a huge dividend.  You might wait for a small pullback but buying the dips might be in order here.

ETF Distributions

Both the short ETFs I own, SDS & TWM, went ex-dividend today.  Many of the Proshares went ex-dividend today so the price of these ETFs fell dramatically.  You can relax though because the drop was roughly the equivalent of the distributions that will be paid on December 30th.  No need to worry.  It’s a wash.  But, there will be a gap in time where your ETF is worth less on paper than it’s really worth because they went ex-dividend today and pay on December 30th.

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1 Response to “Reset”


  1. 1 Hedge December 24, 2008 at 9:41 am

    Karl, I know that you see different oscillators/indicators tending to give better understanding of the trading for different stocks. Which oscillators do you find best for the markets in general? I.e., which oscillators are you using when discussing the markets here?


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