Good Friday Thoughts

I've been obsessed more than usual about the markets lately. There's a tug of war going on inside me. I'm trying to determine if what's left of the trading community is still trying to top tick this rally (a lot of these guys are nursing severed fingers, arms, and legs after Friday's masacre in FAZ and SRS). I definately saw capitulation from the bears on Thursday and noticed a shift that some traders are willing to buy on the dip but I still get the sense that too many people are trying to pick the top of the rally or are waiting to pounce short on the first sign of weakness. Thrusday's move left a big gap in the chart which in due time will get filled but that doesn't mean this has to happen on Monday. Trader's, even the bearishly inclined types, are expecting Goldman Sachs to report a good number so there might be a sell on the news reaction to that but I'm not going to play that guessing game. When I see reckless buying, i.e. shorts desperately covering positions because they can't take the pain anymore, extremely low put/call ratios, ect that's when I'm going to pounce.

Lou Dobbs on CNN today was waxing bullish claiming how there's hopeful signs that the economy has hit bottom and he mentioned that based on a recent poll 86% of economists expect the reccession to be over in September. I'm also hearing the phrase "green shoots" a lot lately to describe what appears to be early buds of a recovery. Clearly there's tons of hope that we've seen the worst but unfortunatley bear markets decend on a slope of hope. But I'll give credit where its due. The following chart is a pretty good feather the bulls can put in their cap. Leading indicators have turned up from very depressed levels. Notice the headfake though In Janurary 2008...could this be another? Possibly...but its less likely given that we are upticking from such extreme levels with huge stimulus thrown at the market. I wonder however how leading indicators fared during the great depression i.e. if there was headfakes or false signals.



I believe the above chart is why this rally has been so strong. Just like in the spring of last year wherby markets rallied for 2 months on signs of stability, it's quite possible and likely we will see a rally of similar duration and perhaps longer given all the stimulus in the system now vs then. That gives you early May as end date to this rally...at the earliest. This thesis will be put to the test soon because even if we do get a prolonged multi-month rally, it will have to at least cool off and consolidate within a week or 2 given how overbought we are.

This gameplan is work in progress....it always is.