Different Tune...Same Old Song

gm bankruptcyConcerns are building in the bear community about the fact that today we saw another strong rally (220+ points), despite the continuing negative economic data being announced, as well as the big GM bankruptcy filing being done today. With this type of move from Wall Street in the midst of such a large bankruptcy filing (even though it was anticipated), there has been even a larger movement of people now believing the worst is over. Although it seems as though the market has been moving up for the past year, in reality it has only been a couple months. From a percentage basis, the recent move up is dwarfed compared to the downfall we've received. One big element of bear markets that never ceases, is the existence of very violent bear market rallies. I discussed the real possible of such rallies back in March, which is why I went long through most of March. Yes, I do admit that the duration of the rally has lasted longer than I anticipated, but there are also outside influences helping to boost the market. The economy as a whole continues to operate exactly how I expected. So as of now, we are just humming a different tune to the same old song.

Much of the most recent rally we have seen has been due to the increase of energy and commodity prices. Oil continues to soar, which is bringing up the cost per gallon of gas. I have explained my worries with increasing oil prices in previous posts, but be assured, such increases will take its toll on the economy. Also, due to the large scrutiny the dollar has been receiving, commodities and precious metals have received a rather large boost, which is something we discussed was a probable outcome last month.

One constant indicator that still remains, which stands out to me as a big argument to this not being the big "bull rebound market," is the continuing low volume amounts. For the last three green trading days, the volume has continued to be significantly low, which is very abnormal for a rebounding bull market. It also gives indication of possible manipulation that I've talked about before. Especially when you analyze the buying blocks throughout the day, there seems to most definitely be a "helping hand" in the market.

The biggest problem to the inflating stock prices is that the economic data and crisis continues to remain very dismal, and looks to only be getting worse. Sure, there were some SMALL indications of a possible bottoming, but newer data is starting to point to more problems. The rude awakening, in my opinion, will be at the end of this week when we receive our unemployment numbers. Remember, this will most likely not factor the newest GM layoffs, however, we should see a lot the Chrysler layoffs and other companies participating in the massive job cuts. If the number is as bad as I think it may be, it may offer up that "reality check" that I believe many investors need. Also, as unemployment continues to rise, so will home delinquencies. This in turn eats into discretionary income, which will ultimately effect GDP as well as more forced liquidations and redemptions in the stock market. As a result, I would expect large trading volume to return to the market and to the downside.


Even after today's strong upward move, the technicals are still pointing to a rather strong leg down. It is important to note that the indicator is a "longer term" indicator, so it's performance will be much better evaluated on a weekly basis, more so than daily. If by chance, these buyers (or the government) see it fit to blow up this market higher and higher, I will re-evaluate the technicals and may ultimately get out for now. However, I remain in my positions, still expecting the next leg down.

GM did indeed file for bankruptcy today, which didn't even the phase the buying. If anything, I see this being a rather negative reaction for the market. It is almost like delaying the mourning for the death of a loved one. In 1970, GM experienced a two month strike, which accounted for a 4.2% drop in the fourth quarter for the US GDP. Albeit, GM accounted for over half of the auto sales at the time, which they now only account for 20%. However, the filing is bound to effect this economy in several different ways. I mean, over 20,000 jobs are already looking to be terminated just with the first round. I've discussed many of the details just how in the podcasts, but needless to say, we need to mourn this loss and I believe eventually the market will.

So, I held off on making moves today, which I may regret tomorrow, as profit taking may be in order. I am waiting for a bit more downward momentum or more indicators from the charts. Financials are not moving quite as strong with the rallies, which if we see downward trading, I expect to see some strong red in the financial sectors. As concerns are increasing in the private sector, especially for financing, that puts just more pressure on the banks. This is why I've talked about pursuing companies like Lending Club, to consolidate debt at this time, as they usually can offer better rates than many credit unions. Tomorrow I will be on chat, and should have some results from technical readings that I will discuss. Happy Trading.

4 comments:

  1. Anonymous Says:

    FF,
    Sounds like you are humming the same tune while the song has changed. No matter what bad information comes along the market will not crash. Two steps forward, one step back. The government will not let the market take more than that one step back. Granted this is not good for the economy, but it's out of our control.

    Just join the rest of the bears and become a bull already.

    Give it up.

    bullmarketstocks.com, here we come.

  2. IMA5U Says:

    FF, the market will not roll over until the TARP is out of the banks.

    Until then, we are in a perpetual upcrash with Goldman leading the way in equity underwriting in an effort to recapitalize every balance sheet in America

    With Goldman collecting the fees

    Nobody cares about dilution or fundamentals. Only green shoots

  3. Anonymous Says:

    let it go dude....join the bulls.

  4. Finance Fanatic Says:

    I will turn to the bull side when the fundamentals and models point to a bull market...As of now, we are far from that, and the only thing arguing that, is the recent rally and CNBC. Be very careful bulls. The models and my instinct has led me the right direction in the past, so I stick with it. Thanks for the concern though :)