It’s been quite a while since I last posted and since then a lot has occurred in the markets. Just to provide the context before proceeding, since we opened Aug OPNewsletter portfolio 2wks back , hold your breath, X is up almost +25%, OIH +14%, IWM /RUT +11%, GDX and Dow +9%, S&P500 almost +8%. What a spectacular bull run over bearish bias we had for OPNewsletter. These are fairly large move, in such a short span, from historical standards.
And guess what, Bulls have been charging up and away without any resistance from Bears, day after day. The market behavior seems to change. Stock markets moves higher during the last hours as opposed to diving deeper in red the last hour. Such an interesting phenomenon, in an overbought condition, represents the strength of the market. It really doesn’t matter to market participants that such a thing has been happening without any volume sponsorship and internals (as measure by Lowry’s) are not at their best level as represented by price action of the markets.
- Bullish side of the coin – Markets have been moving higher in spite of overbought conditions. The bull market signals from Coppock curve and Dow Theory must have converted even one of the most conservative investors to turn Bullish now.
- The Bearish side of the coin- The markets are overbought and a short-term pull back is overdue. Based on Demand and Supply, even a single day of ample sell-off can drive shivers in the markets.
Over the last few days there are two interesting quotes that I came across which pretty much define the whole move from March lows to current high in a simple yet powerful way-
This one is from Lowry’s-
An old factoid says that the most learned scientists and aerodynamic experts have concluded that it is impossible for a bumblebee to fly. But, the bumblebee does not know that he cannot fly, so he just keeps buzzing along. Similarly, despite our evidence that the rally from the March’09 market low has not conformed to the normal characteristics of a new bull market, the major price indexes have just kept advancing to new rally highs. The difference is scientists are dealing with absolutes, while the stock market deals with probabilities.
Another one from latest weekly update from John Hussman-
That said, I can only describe our investment stance here as “uncomfortably defensive.” That is, the measures that have guided the performance of the Strategic Growth Fund over time are still holding to a defensive stance, which is admittedly uncomfortable with the market pressing strenuous but persistent overbought levels. It’s a lot like watching people scale across a tenuously secured rope bridge and get a nice meal at the center. You’d like to climb across and join them, but you know that too many things aren’t right with the bridge, and it’s not clear that the people who are eating will ultimately survive.
Whatever your take on the markets us, this run in the markets since March 9 low has proven “If something doesn’t happen, doesn’t mean it can’t happen. It’s just that the data till date is not sufficient to prove its occurrence” (this is not my quote; I can’t recall where I read that).
Analysts have been increasing earnings estimates left, right and centre. (Btw, do these guys really know anything that helps retail investors? Where were they in 2007 early 2007 when Subprime was about to bring financial Tsunami? Where were those “early warning system” to help guide investors? what about just 4 months back when Markets were to register one of the most powerful rally? The famous excuse “We change as new data emerge”- a convincing one ).
Bottomline- I want to be bullish, but don’t want to be overly bullish. I am still looking for margin of safety. I shared a trade idea for long term with OPNewsletter members and will share more in the coming days. The most I can say is that probably you can treat this as mini bull market (or an extended Bear Market rally) within a set of primary bear market. Near term support for the DJIA appears to be 8900-8800 level, at 945-950 for the S&P 500 and at 1875-1860 for the NASDAQ.
Trade Carefully, Profitable Trading, OP