Monday, September 27, 2010

Friday's Follow Up

Well the market took the durable goods number and ran with it. Like I said, you needed to watch the market reaction. It wasn't a fundamental number. The market reaction said the rally is still on. As a result, as a bear, I continue to hide in the bunker, try to maintain my current shorts, and don't short anymore. Fundamentally, as mentioned, durable goods order is not a number I watch much anyway. Even the core number is incredibly volatile. If you want to find a bearish tilt to it you can look at the 3 month annualized rate. As David Rosenburg pointed out it has dropped from 39.3% in May, to 23.9% in June, to 11.5% in July, and 8.8% in August. Like I said, that is if you want to find a bearish argument. In general I think it is just better to ignore it fundamentally and take the cues on how the market reacts to the number to judge the mood of the market.

So the market loved that number on Friday. That is what matters It seems it is extremely unlikely the market doesn't break 1150 as a result. The problem for bears is if we really break 1150 there aren't any great levels to look for a potential top. You have maybe 1170 and than your back to year highs. The market is convinced that there is no way equities can go down as the Fed and all of its power will keep them going higher. Even if the premise is completely a joke, the belief and growing belief by everyone makes it extremely difficult for the market to go down. It becomes reflexive as George Soros likes to call it.

Again it comes down to Europe. Irish and Portugal spreads were wider again today. Moody's downgraded the unsecured debt of Ireland's Anglo bank. Right now it is assumed the Euro will only go up which is a ludicrous assumption but market sentiment is higher than it was in November 2009 when the Euro peaked. As long as the Euro is moving higher I think it is impossible to be super bearish. Any U.S. economic weakness will be "good" news as it means a higher QE 2 number in November.

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