Monday, June 1, 2009

"Split the Difference" Bull Market of 2009 Gains Steam

Huge wind storm last night knocked out the power for about 10 minutes. This of course brought back terrible memories of the 6 days without power after the big ice storm last winter. Luckily enough the juice flowed again and unluckily the wife remembered to set the alarm for this morning. Oh well. A little short on time tonight as I had to set up some trades as you will read below.

"Split the Difference" Bull Market of 2009 Gains Steam
On Friday I laid out my very unscientific idea that the current market rally could be as simple as stocks getting pushed back to the midway point from the lows to about half way from the highs. From the article:
There is some reason behind the buying. I think the theorem goes something like this;
-When all stocks were going to zero, the DOW was at 6600 and the S&P was at 666
-When the credit boom was at full throttle the DOW was at 14,000 and S&P was at 1500
-If you split the difference right down the middle you arrive at DOW 10,300 and S&P 1083
-This seems like a fair compromise

I know, very scientific. This would be my guess and so those would be my upside targets.


Going through my daily reading I came across these two nuggets that show I am not the only one thinking this way. The first article is from Minyanville contributor James Kostohryz who is about as bullish as you can get:
In my article Your S&P Roadmap, I laid out a framework that demonstrated that equity prices had massively overshot to the downside and were extremely undervalued. Valuations had reached a point that reflected “irrational despondence,” and will only begin to enter into a “normal range when the S&P 500 crosses above 950." The midpoint of the “normal” valuation range is 1,100.
My target for the countertrend rally has been for the S&P to reach between 950 and 1,100. I now believe that the 1,100 is most likely. However, under certain circumstances, I believe it is possible for the S&P 500 to reach the upper end of its normal valuation range - which would place it at 1,350.

Another "midpoint" proponent.

The second item was a comment left on this article on Clusterstock that caught my attention:
Ken G said:
Let's take stock (pun not intended).
The S&P's alltime high was 1,576 in October 2007. The bear market low was 666 on March 6, 2009. From peak to trough we dropped 57.7%. Now, we have recovered all the way to 948 intraday (rounded), a 42% recovery from the low but still 40% below the alltime high.
Ok, so the glass is half-filled with water now. Or is it half empty? Well, the numerical average of 1,576 and 666 is actually 1,121, so we are still in the lower half of the 10/07 - 2/09 range. We can even go higher, I suppose, until we get to the midway point of 1,100 (plus or minus), but will that mean our problems are solved? Depends on when you bought, or when you sold, I suppose.

Amazingly another "split the difference" call!

I think the name should catch on soon enough.

Market Positions
I have opened some market positions this evening and I thought I would share my foray into the markets with the readers. As always, none of the following is INVESTMENT ADVICE!. I am sure you can lose money easy enough all on your own and do not need to copy my dumb ideas. I thought I would show what lines I am thinking along.

Silver
Silver has broken above the area that I was watching (15$) and I like how it looks right here. When viewed through the lens that the dollar MUST go down for stocks to go up silver is a good play on this dichotomy.
Positions:
-SLV buy $15-$16. Upside target $20-$22. Stop set at $13.
-PAAS buy $22.50-$24. Upside target $30-$32. Stop set at $18.
Here I went with both the silver Ishares and a silver miner to capture the expected upside.

Gold
As much as I love gold, it does not look as appealing as silver does to me right here. Still, great basing has occurred and another run at $1000 looks likely.
Position:
-GLD buy $94-$97. Upside target $105-$115. Stop set at $87.

S&P Index
If indeed we are going to get back to the half way point, the S&P still has room to run. I believe in putting your money where your mouth is and thus I will take a position that jibes with my "split the difference" bull market call.
Position:
-SPY buy $93-$97. Upside target $110-$120. Stop set at $89.

I think that the two factors that make these positions attractive to me is that the dollar needs to continue it's way down for the stock market to go up. Minyanville calls this "dollar devaluation versus asset class inflation" and the dynamic has been very real for a long time. I also think that the midpoint theorem has legs and so there is still some room to capture some upside on the S&P.

Some factors going against these positions is the great run all the selections have had already may cap any more running room. Boom Boom Bernanke is set to speak on Wednesday and his comments on the rise in the Ten year notes could kill off the metals inside of an hour (or they could explode higher). Also, if the midpoint idea gets too ingrained then there may well be some shenanigans pulled to stay below that level to keep up the appearance that the markets are really "free". The last force against these buys is that I have taken these positions is usually reason enough for a sharp downside move as soon as my orders are filled at the high of the day.
Full Disclosure: Long positions in SLV, PAAS, GLD, SPY

Have a good night.

17 comments:

getyourselfconnected said...

From previous comments section;

G,
I hope it is good news! Good to hear from you again.

Lisa said...

955: downtrend line resistance
1050: fibonacci retracement of some %
1080-1100: split the difference
Valuations: norm 15x earnings, now 25x earnings
"Hey, the S&P was once at 1500, so it should go back to that sometime tomorrow, because....'cause I have hope and people are too negative."


Quite the cornucopia of opinions as to what the hell to expect. I see disaster written all over this crap. Take a look at the '70's Dow chart. At best, we could hope for that pattern. Who knows? Nobody I know. There are hot-headed bears AND bulls out there proclaiming they know it all. Bullshit. I don't think that even the guys pulling the strings know what the hell they are doing or what the outcome will be.

GYSC, loved the car post!

getyourselfconnected said...

Lisa,
I so miss your technical insights! In no way is my buying SPY an indication I believe in any of this, only I see a shot to play a manipulated market now that the target area is a bit more clear. Of course you know I am way LONG gold/silver and regardless, but the new positions are in place because I think a breakout is imminent (esp Silver). Who knows, but my 2 cents.
PS: you really liked the car post? Are you a hotrod chick or what?

Anonymous said...

Lisa.

To get a sustainable recovery home prices need to fall to 2.5x income and 5 million jobs need to be repatriated in industries that actually produce something that can be exported.
Let the Mo-Mo day-traders guys play this pump game but it ain't gonna end pretty, adding to my short funds with a 6-12 month time frame and I can take a lot of pain trust me. I added to Grzzx today. The problem is still the same problem it was before: too much debt and that bubble is getting bigger not smaller. Blowing a commodity bubble on a still over indebted consumer, rising unemployment, falling home prices and a wave of arm resets as Benny and the ink-jets try to keep bond prices from rising is a not going to end well. This isn't a financial crisis as much as it is a political crisis and the death of an empire.

Kevin

Lisa said...

Kevin, I agree with you about most everything, except 'the death of an empire.' I see it as the rebirth of a republic.

GYSC,
No, not a hotrod chick, but even I can appreciate a fine automobile. :) I don't know all the names and capabilities, but I know what I like. One of my ex-boyfriend's father had a Corvair. He had restored it and it was his pride and joy. We drove all over Tennessee in that thing, it was fantastic. (Too bad the father was married, boyfriend turned out to have no class) lol

Anonymous said...

PONTIAC, Mich. June 1 (Reuters) - At 8:15 a.m. ET on Monday, a General Motors executive gave hourly workers at its assembly plant here the news they feared most: the plant would close by October, robbing most of them of their jobs.
http://www.reuters.com/article/bondsNews/idUSN0152161120090602

That must be one of those green shoots they keep yakking about. Think they'll be voting for the Democrats in 2010 after their unemployment benefits have run out and gas is 4 bucks a gallon? Hum?

Kevin

getyourselfconnected said...

Lisa,
ever been to Smyrna Tennesee?
Sorry the dude had no class, but what do you want from an adolescent?
From the film "Back to School":
Why don't you call me sometime when you have no class..
Funny!
Kevin,
I think you may be on to something. The laughing at Geithner when he said China's US debt holdings were solid is yet another black mark on our storied republic. I am with Lisa though that if things go to the matresses, the real heroes will emerge.

Anonymous said...

GYSC and Lisa

If the real hero's do emerge and there is a rebirth of the republic it will be the end of the empire which is the dollar hegemony which has allowed 5% of the worlds population to consume the majority of it's resources, and funded our military adventures since WWII when the US was the worlds only creditor.
Unfortunately I see falling living standards and the impoverishment of a couple generations along with an expanded war. Could I be wrong? Of course but I put my money where my mouth is win, lose, or draw.

Kevin

Lisa said...

GYSC,
LOL The boyfriend was no adolescent. We were in our mid-20's and in the Army. I've never been to Smyrna, but did drive very close to it just last March!

Stagflationary Mark said...

Lisa,

"Quite the cornucopia of opinions as to what the hell to expect. I see disaster written all over this crap. Take a look at the '70's Dow chart. At best, we could hope for that pattern. Who knows? Nobody I know. There are hot-headed bears AND bulls out there proclaiming they know it all. Bullshit. I don't think that even the guys pulling the strings know what the hell they are doing or what the outcome will be."

I'm a complete believer in your theory!

I'm sitting in inflation protected treasuries while hoping for deflation. I want its inflation protection AND deflation protection.

I think stagflation might be coming but I'm only willing to hoard are hard assets that haven't gone up in price much (like toilet paper and socks!).

One of our problems is that we bought way too much stuff. Can I actually protect myself by buying even MORE stuff?

Another of our problems is that we are treating our currency as toilet paper though. Can I actually protect myself by burying cash in my backyard long-term?

Didn't like stocks on the way down. Got out in 2004. Don't like stocks on the way up. At least I'm consistent there, lol.

How messed up is that? I'm ready for therapy!

I'm staying in TIPS and I-Bonds though. If I am financially ruined through inflation and/or deflation, at least I probably won't be first.

Anonymous said...

Canada mulling asset sales-report
http://tinyurl.com/n7a3t4

Wonder how long before the O-man is forced to do the same thing.

Kevin

GawainsGhost said...

Good morning, sports fans. I do so enjoy the posts and commentary on this site, as I find it highly informative to learn what other people are doing with their money.

As for myself, I don't play the stock market. I don't dabble in securities. I invest in value. And right now that's in the family company. What with the coming tsunami of foreclosures, we're primed to make a lot of money, being one of the few and the most prominent company that deals with repossessed homes in this area.

Ordinarily, there would be about 400 foreclosures in any given month in this county, one of the largest in Texas. Last month there were over 800. Today, the first Tuesday of the month, is repo day. So I'm expecting a lot of work by the end of the week.

Strange thing is though that many people are still buying homes. We move a lot of inventory. Just my mother, the principal broker, and I, her slave, alone list and sell over 100 homes a year. And that doesn't include the two other brokers and six other realtors in our company.

Most of these buyers are young families looking for a starter home, and there are some great deals in the repo market for them today. Others are investors, who I personally think are stupid--why would anyone rent a home now when you can buy one cheap? But a lot are Mexican nationals looking to purchase a home in the US, for vacation purposes but also to provide an exit should Mexico collapse, something which is always a real possibility.

Anyway, to follow up on the discussion on GM the other day, here is this morning's must read.

http://www.gregpalast.com/grand-theft-auto-how-stevie-the-rat-bankrupted-gm/

I smell a rat too.

Diamonds said...

Great information thanks for sharing this with us.In fact in all posts of this blog their is something to learn . your work is very good and i appreciate your work and hopping for some more informative posts . Again thanks
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