Friday we witnessed another big gain for the S&P 500 index. Markets have risen a long way over the past five months. Back in March 2009, when the markets reached a 12-year low (i.e., on March 6th S&P traded at 666), there were plenty of analysts that had predicted a total collapse of the global financial markets. The bearish sentiment triggered a panic-driven sell-off with investors expecting the worst scenario with S&P index down to 500-point level. In their defense, they had some valid points: 1) a further 15% decline in home prices, 2) a worldwide-spread recession, 3) significant future earnings declines and 4) a considerably trimmed down debt market.
As you can imagine, all sectors were getting hit, from the psychedelic Wall Street financial sector to the Silicon Valley’s technology heavyweights. Let’s analyze together few bellwether stocks’ surreal 52-week low quotes:
• JP Morgan [JPM] at $15, Goldman Sachs [GS] at $47, , Citigroup [C] at $1, Bank of America [BAC] at $2.5 or Barclays [BCS] at $2.7
• Google [GOOG] at $247, Apple [AAPL] at $78, Research In Motion [RIMM] at $35 or Amazon.com [AMZN] at $35
As of August 7th, the S&P500 closed at 1,010 points, which translates in more than 50% return from the March low. Logically, the drivers of the stock market tremendous rebound have been the two aforementioned sectors. From those March lows, both financials and the technology stocks have put an accelerated surge in prices. As of Friday, these companies traded at exceptionally elevated levels with record five-month returns (R5m):
• JPM at $43 (R5m = 188%), GS at $168 (R5m = 255%), C at $4.2 (R5m = 337%), BAC at $17 (R5m = 577%) and BCS at $24 (R5m = 794%)
• GOOG at $459 (R5m = 86%), AAPL at $166 (R5m = 113%), RIMM at $79 (R5m = 125%) and AMZN at $86 (R5m = 148%)
Looking at the past, we notice that the Great Depression era, which snowballed between 1930 and 1932, did record annual losses of 33.8%, 52.7% and 23.1%, respectively. The following year, we see an enormous 66.8% market gain that is the second best year ever witnessed. Though 2008’s 33.8% loss was extraordinary, it was in fact only the third worst year ever recorded. The million-dollar question is whether the current market rally si nothing else than a pure bear-market rally.
In my opinion, the general market is technically overbought under a diminishing trading volume environment. Undoubtedly, there is a high probability for short-term corrections, especially across the financial, energy and technology sectors. For the remaining of 2009, I foresee some issues:
• Anytime stocks explode higher on next to no trading volume and questionable fundamentals we could run the risk of an imminent collapse
• The short interest (that is the short selling volume divided by the average daily trading volume) has plunged 72% in the last two months (i.e., Energy -90%, Materials -94%, Financials -86%)
• Companies’ better-than-expected earning reports are mainly due to temporary profits based on a strategy involving slashing costs. Unless actual top lines increase, there is no growth to be seen at the horizon
• When unemployment claims are falling, that should be translated as people exhausting their unemployment benefits. If we add to that the 4 million Americans who lost their jobs in the first half of 2009, we get a gloomy picture for consumer spending. Since the US consumer accounts for more than two thirds of the economy, I suddenly become very worried.
So, fasten your seat belts and prepare for a bumpy ride!
foarte interesant.puls direct din interior
ce alte teme te-ar interesa sa dezbat?
salut toni. baga si cateva views, eventual fa si un portofoliu virtual pe una din platforme (unul real ar fi si mai bun, dar sa nu exageram).
poti fi mai concret te rog?
daca vrei “confidentiality” ma poti contacta pe mail…
de exemplu sa propui 3 “trade ideas” in momentul de fata, la nivelurile actuale, in piete accesibile investitorilor individuali. short S&P, long usd/eur, long 2y treasury futures etc. si ca sa fie mai clar, poti sa faci un portofoliu virtual si sa ne spui ce se intampla in el in timp, ce pozitii ai inchis etc. eu personal prefer ca cei care exprima un market view sa si puna banii jos, fie ei si virtuali. nu e treaba cititorilor ce faci tu PA, doar ce crezi ca se poate spune intr-un blog. e doar o sugestie.
okay. am sa tin cont de sugestia asta, si consider ca ar fi utila si interesanta in acelasi timp. o sa ma gandesc la asta in perioada urmatoare. merci pentru sugestie!
From panic to euphoria we will be heading towards inflation or deflation? Of course, there is no precise answer, but if you could outline factors which favor one or the other. What’s your call Toni ?
Thank you,
Bogdan
Bogdan,
Now that you raised the issue i will write an article about Inflation vs. Deflation. Can I have that topic the one right after the coming article. Since your question does deserve a detailed answer, I will take the liberty and expand it into a full article. Hope you can wait few more days.
Sure, no problem, I’m looking forward for the article.
As Shakespeare said “If we are not patient, we will become poor”. I am making myself strides in that direction.
Ca idee de abordat: pe mine m-ar interesa sa imi dau seama daca se poate face trading profitabil si sa ai si viata personala in acelasi timp. De ex sa tranzactionezi o data pe sapt.
Am citit recent Market Wizards I, si din cate am vazut pe acolo there is no life after job. Poate pe stocks, buy and hold – strategie falimentara insa in perioadele astea..
Adrian,
Evident ca se poate face asta. Important este sa stii ce vrei. Referitor la aspectul “trading profitabil”, indraznesc sa spun ca nu exista garantii pentru profitabilitate. Exista doar trading. Sta in puterea ta sa-l faci verde sau rosu. Dar pe panta asta am putea discuta mai pe larg in particular.
Ca alternativa as putea scrie un articol despre cum poti balansa activitatea de trading si viata personala. Te-ar interesa?
I am lokking forward to hearing from you at your earliest convenience.