Skip to main content

Rally time?

Put your rally caps on. Despite a growing sense among investors that US stocks have entered a bear market, some traders and speculators are expecting an intermediate term rally.

No sooner had I posted the article, "Yeah, it's a bear market" to Safehaven.com, than Steve Saville came right in with an article entitled, "A stock market bottom". And since Steve has been keeping a keen eye on the internals of the market, let's hear what he has to say.

To briefly summarize, Saville is looking at the possibility of a near-term stock market bottom. He bases his call on the recent preponderance of new lows on the NYSE and the expectation that a recent selling climax should pave the way for a five month-long rally.

Still, he points out that any expected rally will take place within the context of a secular bear market, and he stresses the importance of measuring market performance in real terms.

"As an aside, for the past seven years we've consistently maintained that US equities are mired in a secular bear market as defined by long-term downward trends in VALUATIONS (P/E ratios, etc.) and REAL prices (gold-denominated prices). In a high-inflation world it is very important to define the long-term trend in this way, rather than in terms of nominal dollar prices, because it is purchasing power and not monetary value that matters.

For example, if the US stock market were rising at 5% per year while the US$ were losing purchasing power at the rate of 10% per year then it would not, in our opinion, be reasonable to claim that US stocks were in a bull market. What we would have, in that situation, is a bear market in the dollar as opposed to a bull market in equities."

So Steve's longer-term view on the market is very much in line with that of Dow Theory Letters writer Richard Russell, who stresses the importance of valuations when sizing up the stock market.

Also, his comment on measuring market performance in terms of gold recalls the views of Marc Faber and Jim Dines, who remind investors to view market performance in real (inflation-adjusted) terms.

Now let's jump over to Frank Barbera's recent Financial Sense Market Wrap Up for another look at market conditions ahead of the Fed's meeting today.

In, "All eyes on the Fed", Frank summarizes the recent market action and notes the possibility for an upcoming Fed-induced rally.

While he feels that market action has become increasingly bearish, he sees a setup for a relief rally, provided the Fed comes through with a hoped-for 50 basis point cut in interest rates following Wednesday's meeting.

"Be aware that over the last few weeks, the steady downtrend in stock prices world wide is strong confirmation that a bear market, possibly a bear market of epic proportions, has taken control. For months this column has warned readers of precisely this outcome, and only now, with prices badly battered do we see the first real hope for a recovery rally.

That said, we are under no false illusions. The current tenuous lease on life courtesy of technical oversold readings is highly dependent on additional help from monetary policy. If the Federal Reserve does not cut interest rates by at least .50 basis points tomorrow, then the disappointment will reign supreme, and stock prices are likely to get very ugly once again."


So now you're up to date. Check out both articles for more, and recognize any upcoming rally for what it is really is. At this point we are looking at the possibility of a several months-long relief rally within a longer-term bear market. Don't get caught up in the hype.

Popular posts from this blog

Lessons from Hedge Fund Market Wizards: Scott Ramsey

Today we continue our series, "Lessons from Hedge Fund Market Wizards" , with a look at Jack Schwager's interview with Scott Ramsey of Denali Asset Management.  Ramsey, a futures trader and CTA who works on the island of St. Croix, spoke to Schwager about his first foray into the markets, his evolution as a trader, and the process he stands by to protect and grow his clients' money. 1) . Ramsey started trading in college. He was roped into the OTC metals market via a broker's ad in the Wall St. Journal. The broker charged customers a flat fee to buy and sell as much as they wanted in a particular market for six month. At the time, Scott was a novice and didn't know about futures, so he traded metals in this fashion through the inflationary run-up of the late 1970s. 2) . Scott had to rethink his trading strategy after he bought silver at $50 an oz., only to watch it collapse to $26 following a long string of limit-down days. He sold as soon as the market...

Round trip stocks: momentum booms and busts

" No tree grows to Heaven ." - Old proverb adopted by Wall Street. What happens to hot momentum stocks when their rocket fuel runs out? How long can they continue to fly before they come crashing back down to earth? Why is the stock that you paid $100 a share for now trading at $39? These are questions that many novice traders and investors may be struggling with in the wake of the most recent market correction. Momentum stocks have been hit hard as the Nasdaq 100 and Russell 2000 indices have moved lower in recent weeks. Caught unaware by the recent slide, some traders may be wondering when their beaten-down stocks will snap back and allow them to exit with smaller losses (or even reach the mythical "break even" point).  While growth stocks still firmly within their uptrends may form constructive technical bases and move higher after this correction, others may experience sharper pullbacks or break down into full "stage 4" declines (see chart below...

Finance Trends 2019 Mid-Year Markets Review

Email subscribers of the Finance Trends Newsletter receive the first look at new articles and market updates, such as the following piece, sent out to our email list on Sunday (6/14).   Hello and welcome, everyone! If you received our last email notice over the July 4th holiday, you'll know that this weekend's newsletter will serve as a mid-year market update and a follow-up to issue #29, " How to Reinvest in a Rising Market ".   Ladies and gentlemen, without further ado, let's start the show...  Finance Trends Newsletter: Our Mid-Year Market Review When we last spoke, back in February, the U.S. stock market was rallying off its December-January lows. As the S&P 500 and Nasdaq reclaimed their 200 day moving averages in February and March, it became increasingly apparent that a lot of retail investors (and perhaps some institutional investors) were left under-invested while watching this recovery move from the sidelines.  The U.S. stock ...