Too Much Confidence

As the stock market runs up, we’re beginning to hear more and more positive speak from investors, traders, & political officials.  This is good in some respects to not be spreading doom and gloom so much.  But, my concern is the fact that there’s too much of this going on giving people a false sense of reality.  The economy is still really bad and still getting worse.  Yes, the rate of decline has improved as I’ve stated before but the decline is still there.  Unemployment is rising, more companies are having trouble rolling their loans forward, commercial lending is getting worse, and yet we’re seeing almost exuberance out there.

We’ve been hearing speech after speech from President Obama giving more of a positive tone.  Ben Bernanke was out today with some positive comments.  Barney Frank says he’s reassured that all the programs implemented are working.  Sheww.  If Barney Frank feels reassured, shouldn’t we ?????  This feels great but is it really true?

I’m looking at various indicators that I’ve mentioned here before and I think a market pullback is coming very soon.  As usual, we don’t know the extent of the pullback.  But, I’ve been selling a few equities today and raising some cash.  I’ve been writing and saying on my radio show you should not take anything for granted.  When I say don’t take anything for granted in this market, this is what I mean.  It looks like it could head down and we could have at least a 5% pullback (which means much more on individual stocks).  Assume it’s going to do that and sell some positions for the short-term.  If it doesn’t, fine.  But, when we look at the number of stocks trading above their 40-day moving average, it’s over 90%.  When we look at the crazy investor indicator, investors are pretty confident right now.  When we look at the floor traders becoming more concerned and the retail investors becoming more confident (contrarian indicator), the path of least resistance right now for the short-term appears to be down.  In addition, the rally has been losing some steam on the way up if we simply look at the overall volume.  It’s been in a steady decline for virtually this entire month as the markets have moved higher.  It appears to be running out of gas.  I would like to be proven wrong but I’d rather find out with a lot of cash.  All of this data suggests to me that we’re overbought.

Quote of the Day 

I ran across a quote from Ronald Reagan this morning.  I’m not sure when he said or wrote this but how appropriate it is for today’s environment. 

The best minds are not in government.  If any were, business would hire them away. – Ronald Reagan


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1 Response to “Too Much Confidence”

  1. 1 EQ April 14, 2009 at 5:04 pm

    860 on the S&P is an exhaustion point by one anecdotal data point I follow. (Wave count.) We are surely headed back to retest the prior lows if not break them. It’s just a matter of when. Way too much idiocy in Washington and at the Fed. They don’t understand the earth has permanently shifted below them.

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