Thursday, April 30, 2009


WHO raised their alert level to phase 5. I expect it to be raised to 6 in a matter of days. Remember the avian flu outbreak? The highest WHO alert on that was 3. Even though Americans are recovering, it is the virus geometric rate of infection and possible mutation into a second strain that worries me. A vaccine will not be made available for months. Take proactive measures to isolate yourself from anyone showing symptoms. That's right, no hugging or kissing, sorry.

As for the market, it went higher as predicted. Any sized pop will bring the market over 875. This level on the SPX is absolutely critical. It is the largest and most powerful resistance level that is preventing possible movement up to the 200-day MA. Nonetheless, the fact that we've been testing it for several weeks shows me that the market still wants to go higher. We may be forming an ascending triangle off of this range. 875 is the tell. I personally expect some sort of consolidation after a 2%+ move.

A look at the RUT and COMP also suggests that we move higher. Out of the DJIA, SPX, COMP, and RUT, the latter two show the best promise. Is it no wonder that all my longs are small caps? If you're in tech stocks, then you're winning big. Concentration should be placed on small caps and tech. If you are looking to go short, the airlines formed a breakaway gap on Monday. This viral strain will spread quickly, and it will hurt the industry. CAL and DAL are possible prime swing short candidates.

Despite my near apocalytic first paragraph, I am long many $1-3 stocks. I have a 8% FAZ position as well as a 22% cash position. The FAZ is there to serve as my portfolio's insurnace policy. Long holdings include FEED, FIG, CBB, WRES, THC, IO, and CAR. I am looking at QTM, PKD, and HERO as long candidates, among others on my list.


Bob said...

EURO/JPY is now fractionally above 130. 130.80-131 is a significant resistance. EURO/JPY index, in that the Yen acts as sort of a fulcrum between the dollar and other currencies re FOREX trading, serves as a very strong indicator about where international money is flowing. Hence, it also serves as a strong, albeit indirect, leading indicator re our own stock market, and is heuristically verified.

With the EURO/JPY index now nearing a strong resistance point as it has been for the last few weeks, we continue to stand at a critical juncture. If it fails to significantly break through 131, it is time for at least traders to sell US equities.

If it breaks out beyond 131, then we will know this rally is something more than just a typical bear market rally. I have added to my short position, as this index now tests resistance, but will close this position should 131 be significantly violated to the upside. This rally has already extended farther than I had thought it would. On the S&P, 876 was strong resistance, and that has been broken. Of course, we still have historic seasonality.

Anonymous said...

What do you think about MPEL? It seems to have a resistance at $5 and support at $4. Volume is increasing.

John C. Lee said...

thx for the forex update, bob.

anon - it's in a neutral range. it'll need time, but I am unsure of direction for it.

Bob said...

On April 29, S&P hit momentarily just above 880 with stochastics printing >80 then, on April 30 S&P briefly flirted with 890 with stochastics printing >80, and on April 30 it failed resistance just BELOW 880 and with stochastics printing >90, and finally the late day surge back to around 872 showed the stochastics aat only around 50. Looks like a possible umbrella top and a bull rally in serious risk of running out of momentum. Uf we do not see strong volume to the upside on Monday a reversal is in order.

Fundamentally if one assumes a modestly average PE of 15 for the S%P, then anything over 900, S&P earnings will need to be > $.60. I would seriously question whether such is possible at this time. Thus, quantitatively and fundamentally additional inflections might be needed to continue this rally. What it has mostly going for it is historical low prices and increasingly appetite for risk as seen via ERUO/JPY. The whole thing seems, short term as much of a "gambler's paradise" as anything.

Longer term, the fact that contract law is being changed via Govt. fiat, interfering with the Chrysler shut down (referring to the Govt., offer to the bond holders of .04 on the dollar, while giving 55% of the company to UAW) hardly bodes well for the future. That is, in that there is now a complete abrogation of the historic promise, and heretofore LEGAL obligation, to senior debt holders, allowing them to be first in line re bankruptcy, who in their right mind would loan any distressed and/or leveraged public US company money??? Hence, as I have asked myself repeatedly how then, can anyone with any assurance, apply a classic DCF intrinsic value or even net/net to anything inclusive of the overall S&P? How can one play any game with any degree of confidence when it is painfully obvious that the rules of said game might well be changed in the middle? It really is; "different this time". Thus, old metrics just no longer apply. The simply is no longer any type of separation of powers in that the Legislative and Executive effectively trumped the Judicial. And "court packing" will soon come if anyone in the latter deigns to object, indeed, it will still nevertheless come even if they remain silent. I thereby submit historic valuation means very little in our brave new world. Until further notice therefore, both "value investing" and "buy and hold" are dead.

What I am really amazed at is that it has all largely gone through with scarcely a shrug. Contract law, property rights, shareholder values are now subject not to the rule of law and historic agency regulations, but rather the changing winds of governmental whims. This is not good.

The primary point of all this blather is just one thing.

We live in a most UNCERTAIN investing environment, with no one knowing how far current interventionist tendencies will run, or, what directions they might take. They have already run farther and traveled in more directions than many thought. And more seems to be on the way. In the end, there is one thing above all else that Mr. Market both hates and fears, and that is...uncertainty. Sooner or later, this implied uncertainty will be expressed and then, show its weight. Hence, the phrase of the day for the current market situation is..."Caveat Emptor".