Not Feeling It

The market jumped again Friday on all this news of new plans and stimulus packages, etc.  Sound familiar?  It’s very easy to get caught up in the news and watch the market react to it and feel like the bottom’s been put in and we’re going higher.  But, I need to caution you to stay focused on the action of investors, not headline news.  There have been so many times the markets have rallied during this bear market simply because there was some news that was going to be a “catalyst”.  After each piece of news that would come out over the past few months, the market would rally for a few days….only to be sold into. 

As you know, I’ve been shorting on the way up.  I’ve been a little early so far but I’ll continue to short if the internals stay weak on the way up.  Certainly things can change that would cause me to cover my shorts but for right now, here’s what I see.

This is another news related rally.  Remember, we had the Bear Stearns bailout on a Sunday night.  Everyone said “shewwww, we avoided armageddon.”  Then, we had Merrill Lynch being taken over by Bank of America.  Well, we see how well that’s worked out.  Then, we had a huge rally because of TARP when it was first announced.  Then, we had a huge rally when Geithner was announced as Treasury Secretary.  Was this a rally because Geithner was coming in or because Paulson was going out?

It’s one thing after another.  One news event rally after another.  We have to wait for the market to react to it in a meaningful way.  Not, just short covering.  And, I think Friday was short covering.  It was a “just in case” rally which is ok because if you’re short and they change the rules of the game, you can get hurt.  But, even if a stimulus package is passed, what next?  I’ve heard reports over the weekend that the Stimulus package would have a ton of spending in it but only 15% would be spent in 2009.  If that’s the case, should the market be rallying?  We need the stimulus to be large, quick, and targeted.  Not sure if that’s the case.  We’ll see.

The volume was ok Friday, but it was still lower than the day before. Out of all the new highs and new lows, about 83% were new lows.  The breadth was pretty good on Friday especially because the banks participated.  But, when you look at the screen and the leaders are GE, Citigroup, and other beaten down stocks, you have to wonder.  That’s been the pattern in this bear market.  You sell when the leaders are the weak stocks.  Remember, every rally feels like the bottom.  Every rally has some news driven event.  But, we need real buying, accelerating volume, solid breadth, and investors not willing to sell into rallies like they are now.  I don’t think we are there yet.  Now, at some point, we will get a longer lasting rally, but I don’t feel like it’s now.

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