Recovery or Dead Cat Bounce?

[sinner]

http://bespokeinvest.typepad.com/bespoke/2009/04/sp-500-50day-moving-average-spread.html

Bespoke has posted an article on their blog, pointing out: "The S&P 500 is currently trading 8.56% above its 50-day moving average, which is its most overbought reading since May 2001. As shown in the historical 50-day moving average spread chart of the S&P 500 below, these levels are rarely reached, and when they are, pullbacks or sideways trading usually ensues. "

Although if you click the link and look at the comments you will note someone has pointed out that during the 1982 47% rally, the spread moved as high as 14%.

I have attached the chart included in the article. I have also attached a 3 year chart of the SP500 overlayed with the 20MA of the total put/call ratio as published by the CBOE (thanks to IndexIndicators.com and wayneL for putting me onto this chart).

As you can see, there have not been so few puts on the market in a very very long time. Generally as a contrarian indicator this would highlight that nobody is really shorting, everyone is long! When everyone is long, it's time to go down.

Caveat, the markets will do as they like, not what the pretty lines indicate!

 

[Uncle Festivus]

What's the 'bet' that global markets will be up again this week after another 'surprise' lift in bank earnings and "better than analysts estimates" figures filter through? It's so orchestrated it seems illegal to make money out of it - hang on, it is GS will top estimates? Pile on the longs....?

 

[Gordon Gekko]

That's right uncle!

If your not long your wrong!!

Best of luck

G

 

[arae]

"Even if a new bull market did begin earlier this week, chances are good that the market in the next several weeks will retest the bear market's low. That at least is what occurred following almost all of the 34 bear market bottoms since 1900."

March 11th, 2009

http://www.marketwatch.com/news/sto...x?guid={F072CB1B-D990-4D3A-8F45-D92AB9FCCFFA}

Sounds like quite an overwhelming statistic. I would be interested to hear anyone else's thoughts on this, including, if in fact it is true.

 

[psychic]

I am ready to re-test those lows

 

[Gordon Gekko]

Haven't heard much from the bears in the last couple of days? Does that mean they are starting to believe this rally actually has legs?


Assuming it does retest the lows would you bears buy in at the lows or would you assume its going to go even lower? At what point do you see value?

When is a dead cat bounce considered a recovery?

The market overshot to the down side, I think it will surprise most how it overshoots to the upside.

All the best of luck!

G

 

[psychic]

Yes, this is the start of the big dive, Dow futures down after this news:

Stores suffer big drop in March sales

Unexpected 1.1% decline in overall sales follows two months of gains

 

[carmen]

I would love the market to re-test the lows, knowing my luck wall street will rally off this news

 

[metric]

World Bank Calls China: A “Ray of Hope”

http://www.moneyandmarkets.com/world-bank-calls-china-a-ray-of-hope-33134

World Bank Calls China: A “Ray of Hope”
by Tony Sagami 04-14-09


The Dow has been on a mini-roll. Therefore, most investors are thrilled to see battered stock portfolios recover even a smidgen of their massive losses. The problem is that these investors aren’t paying attention to what’s happening elsewhere around the globe. And they may be missing out on the opportunity of the decade!

That’s because the morsels of good economic news coming out of the U.S. are completely overshadowing what’s happening in Asia.

China:
A Bright Spot in the Region
And the Global Economy

Just last week, a new report from the World Bank painted a very pretty picture about the economies of China, the world’s third-biggest economy, and its Asian neighbors …


The World Bank is forecasting that the Chinese economy will grow by 6.5 percent this year and expects it to really take off in 2010.
Thanks to China’s $586 billion stimulus spending plan, the World Bank is forecasting that the Chinese economy will grow by 6.5 percent this year. Could you imagine the cartwheels Bernanke and Obama would do if the U.S. economy was growing by that amount?

Things are so positive in China that the World Bank called China “a bright spot in the region and the global economy” and expects the Chinese economy to really start rocking and rolling in 2010.

Vikram Nehru, the World Bank’s chief economist for its East Asia region, thinks the worst is behind China and that China has or is very close to bottoming.

He said:

“The evidence on what’s happening in China seems so pervasive and seems to cross so many indicators that I think there is now a growing degree of confidence that the stimulus package in China is having impact. Purchases of inputs have soared. Even consumer confidence is up and of course everybody knows bank lending has accelerated quite significantl.”

more at link...

 

[MrBurns]

Cant understand how anyone could buy into all the bad news around, must Be blind optimism, but they are............I will be sitting on my hands for a while yet, unemployment looks to be spiraling out of control, it just snowballs, no ones spending so the economy protracts, more layoffs, people spend less and around it goes, I cant see an end to it yet, I can see empty shops looming on the near horizon, retailers you know well are under extreme stress and may not survive, well lets face it they wont because this wont let up for a long time yet, we're still in the down leg of economic decline.

 

[pilots]

I am with you on this, while we have unemployment is on its way up, nothing will happen.

 

[professor_frink]

I am with you on this, while we have unemployment is on its way up, nothing will happen.

unemployment usually peaks after markets have already bottomed, probably not worth keeping an eye on it to look for an entry point back into the market

 

[michael_selway]

unemployment usually peaks after markets have already bottomed, probably not worth keeping an eye on it to look for an entry point back into the market

Yep the share market is a leading indicator as prices are based on future estimates of EPS, while unemployement is a lagging indicator, as once EPS drop companies will look to fire

thx

MS

 

[MrBurns]

unemployment usually peaks after markets have already bottomed, probably not worth keeping an eye on it to look for an entry point back into the market

I think unemployment wont peak for a while yet though it's accererating at a great pace at present, I think that will keep going for a while.

So how can you buy into this market unless you're just trading ? You cant , Qantas for instance will be a smaller company with less profits for who knows how long and there's more to come, in fact almost every listed stock will be effected this way.

Yes I know it's already dropped 50% but what these stocks are worth depends on how they come out of this mess, it's just guess work.

 

[Grinder]

Yes, this is the start of the big dive, Dow futures down after this news:

Stores suffer big drop in March sales

Unexpected 1.1% decline in overall sales follows two months of gains

Psychic, you seem to be quite the doomsayer in all your posts for sometime now. Is this reflective of your true opinion of the market or are you simply short waiting for a reversal?

 

[MrBurns]

I
Yes I know it's already dropped 50% but what these stocks are worth depends on how they come out of this mess, it's just guess work.

I have a sneaking suspicion that the banks will be more than ok when this is over they've strengthened their positions nicely and seem immune to problems as they are a monopoly they just change the rules and/or adjust their fees to suit, need to decide when to go in though.

 

[Uncle Festivus]

Haven't heard much from the bears in the last couple of days? Does that mean they are starting to believe this rally actually has legs?


Assuming it does retest the lows would you bears buy in at the lows or would you assume its going to go even lower? At what point do you see value?

When is a dead cat bounce considered a recovery?

The market overshot to the down side, I think it will surprise most how it overshoots to the upside.

All the best of luck!

G

Bears are by nature a very patient lot. I have been closing longs and opening shorts these few day's. Goldman Sachs sp reflecting reality today on the requirement to bolster the balance sheet with private investors money. A bigger smoke and mirrors sideshow attraction featuring freaks and magicians there has never been. The criminals are still in charge of the system.

Yes, this is the start of the big dive, Dow futures down after this news:

Stores suffer big drop in March sales

Unexpected 1.1% decline in overall sales follows two months of gains

Don't you just love the 'unexpected' bit each time. We are probably at the point where demand is equalling manufacturing at recession levels at the same time as inventories are depleting or have been depleted - it doesn't mean it's a bottom, just a new phase of slow decline?

http://www.moneyandmarkets.com/world-bank-calls-china-a-ray-of-hope-33134

more at link...

China is going backwards at anything less than 8%, so 6% is recessionary for them. They are already starting to show glut's of some commodities due to the artificial stimuli from their governments ditto response to the GFC.

 

[nomore4s]

So how can you buy into this market unless you're just trading ? You cant , Qantas for instance will be a smaller company with less profits for who knows how long and there's more to come, in fact almost every listed stock will be effected this way.

Yes I know it's already dropped 50% but what these stocks are worth depends on how they come out of this mess, it's just guess work.

There will always be a certain amount of risk with buying shares. When & what you are willing to buy depends alot on your plan, timeframe and appetite for risk.

To me at least there is some great value appearing in stocks with very good future outlooks that are paying good d/e yields. Some companies will continue to grow earnings even in this environment and other companies with strong balance sheets will ride out this storm with minimal damage. I have been buying small parcels for this portfolio for a few months now - refer my blog.

People need to keep in mind that just like the last bubble eventually burst, this bust will eventually recover. Whether that takes 1 year or 10 years I don't know but I do know this is an opportunity to set myself up for future years.

 

[Nyden]

There will always be a certain amount of risk with buying shares. When & what you are willing to buy depends alot on your plan, timeframe and appetite for risk.

To me at least there is some great value appearing in stocks with very good future outlooks that are paying good d/e yields. Some companies will continue to grow earnings even in this environment and other companies with strong balance sheets will ride out this storm with minimal damage. I have been buying small parcels for this portfolio for a few months now - refer my blog.

People need to keep in mind that just like the last bubble eventually burst, this bust will eventually recover. Whether that takes 1 year or 10 years I don't know but I do know this is an opportunity to set myself up for future years.

Completely agree. Burns, even in raging bull-markets, there is always the chance you'll just be a shocking loser and pick all the wrong buys!

Jeez, just look at the bearishness here. So many people posting their little 's, wishing for new lows to be re-tested?! Why? Are you guys short? No, probably not. Upset that you missed a short-term bottom? Yes, that sounds about right.

If we do hit new lows, will you guys actually do anything with that ? No, because you're whinging little cowards who will only keep calling for new lows, in the hopes of perhaps hitting zero? Just let me know when some of you buy in, so that I may sell.

 

[MrBurns]

Completely agree. Burns, even in raging bull-markets, there is always the chance you'll just be a shocking loser and pick all the wrong buys!

Jeez, just look at the bearishness here. So many people posting their little 's, wishing for new lows to be re-tested?! Why? Are you guys short? No, probably not. Upset that you missed a short-term bottom? Yes, that sounds about right.

If we do hit new lows, will you guys actually do anything with that ? No, because you're whinging little cowards who will only keep calling for new lows, in the hopes of perhaps hitting zero? Just tell me when some of you buy in, so that I may sell.

Haha if I have to throw money away so I wont be called a coward, count me out.

Calculated risk is one thing gambling is another.

I dont care about lows or picking the bottom I just dont want to put money into a market that may sink any second, coward ? no, just not dumb ars* bullish stupid.