A cousin of mine recently posted this in his facebook status
I love the way the Toronto Star is reporting how the economy is starting to get better while Sky Service, Lake Port Breweries and a Saputo plant are all closing down for business. Basic economics, no jobs, no recovery. Educate yourself people. Don't believe everything you read
My cousin is what you would call a main street observer of the economy and I think it's fair to say that a lot of people like him (probably most people) share his views. He has no background in economics or finance and never bought a stock in his life. The funny thing about his comment is that he's the one that needs to be educated!He bases his opinions of the economy upon naive observations such as jobs which is a lagging indicator. Guys like my cousin are the type of people I love to fade especially when the stock market is moving sharply in the opposing direction. Guys like my cousin are the "dumb money" even though he's a smart guy in general. My cousin's views echo the view of the general main street media, another late to the party dumb money indicator which I mentioned a few times before.
I said before, one way to know what's the right path is to take the opposite one that the dumb money is travelling on ESPECIALLY when the dumb money is going against the message of the stock market. The fact that the market has soared 75% in 1 year and Main Street for the most part remains bearish/skeptical about the economy is a very good sign that the bull market is still in phase 1 - skepticism. Yes, I know a 78% gain is huge but bull markets don't end based upon a certain percentage move attained. They end when greed and excess is paramount because that's what sows the seeds of the next bear market.
My cousin's comments give me the encouragement to continue to look for individual long plays. The next phase of the bull market - optimism, will begin when clearer signs of economic recovery are evident i.e. persistent job growth. We aren't quite there yet. Don’t let the prospect of a looming market correction interfere with your decision to buy an individual name that looks promising. Go for it. You can always hedge the position a bit with an index put but don’t go overboard on the hedging.
Do you agree with most analysts on the street that S&P could be around 1300 at year end?
ReplyDeleteI honestly thought we were going to sell off today but the bulls show up the last 30 minutes and Dow is only dow 70 some points, no signification damage done yet.
Great post!
ReplyDeleteI feel like we're overbought on the short-term.
It's funny...in Jan/Feb Greece brought the whole market down about 10%. The Greece issue seemed to go away for a while and now it's back, worse than ever. However, this time there's minimal impact on the markets.
However, I think Greece, UST bond yields or some other random piece of news still have the potential to trigger a correction.
Longer-term, it seems like the economic momentum is building. Directionally, the market is right. Valuations? I don't know. Earnings will probably catch up.
Dennis, I think we can and will hit 1300 and I'm not so sure 1300 is the consensus forecast. At the begining of the year the consensus was around 1222 based upon the avg forecast of major wallstreet firms. Mabey that's changed.
ReplyDeleteMO, I think there's 2 reasons why Greece's resurfaced problems have not had the bite like it had before. 1) It's old news now and 2) Back in Janurary, the market was in a poor condition sentiment wise (in the short term) as there was signs of greed from both rydex traders and option traders and weak bears were all but squeezed out. That puts the market in a vulnerable position...in those conditons it would take any kind of "excuse" to trigger a correction and there was a few of them Greece being one.
As of now were are in a similar position as early Janurary. It's a little unclear to me however that all the bears who got trapped shorting around SPX 1100 have all capitulated.
I mentioned before that a lot of them used April puts to bet against the market which is why we might not see the market roll over in a meaningful way untill perhaps mid April but we are certaintly overbought enough right now to start heading south and so it wouldn't suprise me...but my gut is saying "we're close but not ready yet"