In retrospect, the market rallied since July on the belief that the economy will have a soft landing. Inflation will go down, and the Fed would have the flexibility to reduce interest rates sometime next year to boost the economy. Very few even talked about soft landing in July, the talk was all about hard landing and housing lead recession, inflation and 100 USD oil. In the face of such skepticism,contrary sentiments, and majority convinced about that scenario, a rally in market was the perfect scenario. After all the market is the leading indicator and it signaled soft landing. Low expectations about earnings also helped.
Now look at the following things:
Market has rallied without a pause for 5 months. Many stocks have doubled or tripled in that period. There are few bargains. Earnings got priced in. So on a broader level, there is likely hood of pause in market, or correction or sideways move.
Some best performers during the July to December rally periods are:
ACOR,Acorda Therapeutics Inc (Google Yahoo Earnings BW Chart)
ANGN,Angeion Corp (Google Yahoo Earnings BW Chart)
AZL,Arizona Land Income Corp (Google Yahoo Earnings BW Chart)
BRLC,Syntax-Brillian Corp (Google Yahoo Earnings BW Chart)
CHTR,Charter Communications Inc (Google Yahoo Earnings BW Chart)
FTGX,FiberNet Telecom Group Inc (Google Yahoo Earnings BW Chart)
GOAM,Goamerica Inc (Google Yahoo Earnings BW Chart)
GROW,U.S. Global Invest Inc A (Google Yahoo Earnings BW Chart)
IAAC,Internat Asset Holdg Cp (Google Yahoo Earnings BW Chart)
JST,Jinpan Internat Ltd (Google Yahoo Earnings BW Chart)
MAMA,Mamma.com Inc (Google Yahoo Earnings BW Chart)
MDV,Medivation Inc (Google Yahoo Earnings BW Chart)
NVEC,Nve Corp (Google Yahoo Earnings BW Chart)
OMRI,Omrix Biopharmaceuticals Inc (Google Yahoo Earnings BW Chart)
PTT,Vcg Holding Copr (Google Yahoo Earnings BW Chart)
SQNM,Sequenom Inc (Google Yahoo Earnings BW Chart)
STEC,Simple Technology Inc (Google Yahoo Earnings BW Chart)
TGEN,Targeted Genetics Cp (Google Yahoo Earnings BW Chart)
UUU,Universal Security Instruments (Google Yahoo Earnings BW Chart)
VNDA,Vanda Pharmaceuticals Inc (Google Yahoo Earnings BW Chart)
The earning season will decide the fate of the market. The bolder bears would be pressing their bets in anticipation. Some stocks which had good run would be extremely vulnerable to sell offs post earnings.
Bears have thrown in the towel. That is a huge contrary signal. See the latest Business Week yearly forecast. It is official the biggest bears of last years have thrown in the towel.
For every season, there is an official or unofficial spokesperson for the bearish/bullish scenario. Always watch the media's and blogospheres popular bears for contrary signal. When thousands start flocking to the new bearish/bullish guru and media lionises them, the market takes its revenge by discrediting them, they lose their followers, they lose their investors, they lose their newsletter subscribers. Wall Street is littered with zombies of once popular gurus, running from one TV studio to another trying to belt out outlandish scenarios and trying to hold on to their remaining hard core followers and newsletter subscribers. The cycle continues.
Recent news has been telling you what the market anticipated in July. Recent data points are showing moderate inflation,slowing economy (that is what Fed wanted). So when the reason for rally becomes apparent and grandma in Timbuktu also understands why the market rallied from July and start believing in the new reality, best part of the move is most probably over.
The other dynamics at work is holiday and year end. To preserve gains most large holders might not want to upset the apple cart, they would have bought enough protection for that. Those who have made money in the rally since July would also like to preserve their gains.You can clearly see profit booking in many high fliers in recent rallies.
So all in all we are in the waiting game mode. However for pure momentum plays of few days, it will be excellent time. Thin and low volume environment is very conducive to some quick 10-30% kind of moves on stock with catalyst or news.
6 comments:
Pradeep, you say "In retrospect, the market rallied since July on the belief that the economy will have a soft landing..."
however, you were saying earlier, in many of online exchanges that earnings were driving the rally...
busy morning, catching up on lots of stuff...
ticker sense: bulls = bears
watch out!
Hard landing= earnings will be below expectations.
As to the blogger poll, I saw that and laughed. After fighting the rally since it started, the "prominent bloggers" are now just about neutral.
Also if you have noticd in the yearly polls some prominent and notable bloggers have dropped out.
VIX hit it lowest levels ever today
Get your short list ready. I used morning strength to move in to cash. Don't want any tension during holidays.
yeah, i dont like any open positions during winter holidays, summer vacations, etc
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