Wednesday, May 13, 2009

A Little More Market Chatter

Well, as I said yesterday, I reached maximum frustration with the market. Probably a sign that we were due for a slide. I had to play every mental game available to let my portfolio run and not increase long exposure or hedge my short book over the last few days. I succeeded in that endeavor where I am sure others failed and others also succeeded. Of course that is the key to investing. It isn't IQ. It is mental health. Sometimes I succeed, sometimes I fail. The key for long term success is to succeed more than you fail. Control your brain waves.

As far the market, from a technical perspective (for whatever it is worth), you have huge support between 870 and 875. The only reason I bring it up is because if you break that, I think you will get the momentum guys really piling on. Another key sign will be how the market responds to the jobless claims number tomorrow. Previously whatever the number reported was bought. If the number tomorrow comes in a little lower or in line but is now spun, the consumer will still be weak because of it, and the market is sold, that could mean a much bigger drop. If you really break 870, there could be a long way down in a short amount of time.

In general I don't think we are going back to the lows in February in the short term. I would not be surprised to see home prices go up (using the Case Schiller Index) for a multiple of reasons. The index is non seasonally adjusted and even last year the decline almost got to zero. This year I wouldn't be surprised on a non seasonally adjusted basis if it flips over to positive. This could really get the speculative juices flowing in the markets. Also the foreclosure moratorium may cause inventory to show a false decline as it takes 4 to 6 months from the time of foreclosures to occur for a sell to occur by a bank. Foreclosures are now really picking up again since the moratorium was lifted. It will take awhile for these homes to hit the market. I think Q2 bank numbers will also surprise to the upside. My guess is more games will be played with undereserving. You also had a massive amount of refis which will drive one time fees. In general, I am not sure the top is in the for the year. We may get just enough of a down move for the bears to say, see I told you so before we have one more leg higher to really dwindle the bears out there, the final gasp before the games the banks play really catch up with them.

All this is speculative conjecture. It doesn't mean much. What it does mean though is if we get another day or two like today, I will be hedging my short book. The difference is I will be doing it when I want to do it instead of the market forcing me to do it. The first is always much much much cheaper.

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