Saturday, May 29, 2010

New Normal

You need to throw out the patterns that worked from March 2009 to April 2010.  They will no longer work for the next few months.  The market tends to reinforce a pattern on the majority and then changes the pattern.  We were so used to the dip buying pattern that I got caught a couple of times with my hand in the cookie jar.  Dip buying will be treacherous now.  The fragile trust that was slow rebuilding in the market has been shattered.  It will take a while to regain it.

I have heard more than once about how we need to wait for higher prices to short because of what happened in February.  This is a different market.  In February, you didn't have these skull crushing moves in the final 30 minutes like you do now.  That is vintage October 2008.  The European crisis is getting more dire and building energy.  The ECB is notorious for being late in their moves, the market will force their hand again to make bolder moves in quantitative easing.  By the time they feel the urgency, we'll be below 1000 on the S&P. A level closer to 950 reflects the European problems.

It is funny how when the market was going up, the wall of worry was about the rally being liquidity driven, high unemployment, and the stimulus going away.  Now I hear more talk about how the economic data is looking good.  Remember, economic data is always backward looking!  We need to look through the windshield, not the rearview mirror.  And the windshield reveals an ugly picture in Europe affecting global growth which will bring down earnings estimates. 

Technology has the biggest exposure to Europe.  Nothing will scare this market more than when the earnings warnings in tech start streaming in during mid to late June.  Meanwhile investors are whistling past the graveyard. 

3 comments:

Anonymous said...

We'll find out next week. You could be right. No doubt in the medium term, there is not much to look up to for valuations go higher. Economy sucks!

Anonymous said...

What blogs or sites do you use to get other people's opinions of market direction to help formulate your own opinion? I think it's important to use other people's sentiment as a gauge to get a better read on the market.

Market Owl said...

Elite Trader, Marketwatch, Seeking Alpha, CNBC.