Saturday, July 17, 2010

Some perspectives please!

GE earnings came in nicely but revenue missed estimate. The market jumped into conclusion that the economy is going to be damned slow.

Then whole bunch of financial stocks suffered bungee jump. Not sure they were complaining no growth or worried that they will be fined by the government too, after the wall street taiko Goldman Sachs settlement of US $ 550 mln.

If we buy and sell stocks reacting to these kind of day-to-day news, capital will dwindle very fast as we keep cutting losses. If you do nothing, one fine day, some stocks you like to own will just move up by 5 - 10 %, leaving you with huge regrets, sigh, If I know this earlier.......... It's really damn if you do, damned if you don't..........

Some very interesting comments by John Hussman in his weekly commentary on the current market of rent and not own mentaliy. I disagree with the rest of his bearish assessment but agree 100% with his perspective on the renting mentality.

(John P Hussman) Perhaps the best way to begin this week's comment is to note that in decades of market analysis, I can't remember a time that I've heard so many analysts quoting some support or resistance level as being "critical" for the market. Some are eyeing the 1040 "neckline" on the S&P 500 "head-and-shoulders" formation. Others are eyeing the downward trendline that connects the April and June peaks for the index. Still others point to the "death cross" between the 50-day and the 200-day moving average, near the 1100 level, as being crucial. Even Richard Russell - who deserves more respect than most - has put the full weight of his analysis, over the near term anyway, on whether or not the Dow Transportation average remains above the closing level of 3792.89. The object of discussion has increasingly turned to the implications of this particular chart formation or that, as if some magic number or another absolves investors from having to think about the big picture.

All of this suggests that this is a "rent, not own" market being driven by technical traders who uniformly and somewhat predictably pile on to the sell side or the buy side when particular levels are hit. Last week, we observed the obligatory rally to prior support, closed a "gap" in the S&P 500 chart from a couple of weeks ago, and kissed the 20-day moving average. Based on this sort of "critical level" chatter, a move above the 1100 level could trigger a powerful but short-lived burst of short-covering on the relief of the "death cross", while a move below 1040, and particularly a break in the Transports below 3792.89, would most probably cause all hell to break loose. Simply put, over the very short term, market fluctuations are likely to be driven by masses of technical traders, nearly all acting on precisely the same signals.

The key issue here is the sustainability of these moves. To the extent that an upside breakout is accompanied by a substantial relief in near-term economic concerns (e.g. a move in the ECRI Weekly Leading Index growth rate back to positive territory, or three to four weeks of plunging new claims for unemployment), one might anticipate a positive follow-through over the intermediate term. In contrast, a downside breakout accompanied by further deterioration in reliable economic indicators or poor corporate guidance would prompt a more sustained period of deterioration. Lacking such confirmation from "real" indicators of economic and corporate activity, the immediate response of breakouts or breakdowns is likely to be confined to a short burst of concerted selling or short-covering.

The world has not come to an end. I will keep my technical analysis tool back in my drawer and switch more to valuation now. Most of people have no idea when they talk about "IMPORTANT" key psychological level. Unless DOW, S&P 500, etc break down 20% from a high, or goes below 2009 low, etc, they are just noise.

First the market said we are going to have 1930s depression. That has not happened yet.

Then they talked about double dipped recession of late 1930s. That they said has low chance of happening.

Now they talk about sub-par growth. Well, they just can't make up their mind.

I'm more comfortable to quote Benjamin Graham now as we are not in an environment of mass deleveraging, normal value investing rules should apply.

“In the short run, the market is a voting machine, but in the long run it is a weighing machine.”

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