We had a good week last week shorting. If you don't like to short, there's no reason to not have it be part of your strategies. All great traders short. For now, steel is the best sector I can tell that is shaping up. But even so, you never know what the market can take down with it. There may be a rebound in the market here, but the overall trend is negative. I'd like to see things shape up for a day or two before getting into new trades. Remember, two weeks ago, we didn't trade, and then we have three winning trades. Being in cash is never a bad thing. We trade when there is real opportunity, not just when things are "sort of ok". That's why we've consistently been making winning trades, and getting out of losing trades very quickly with tiny losses. So, let's wait out Monday.
Please view this trend video:
http://www.youtube.com/watch?
Main stream news networks like CNBC and Fox News and Bloomberg won't give you the real deal. Glenn Beck will, but other than that, you won't get too much from the main stream media.
There was little in the way of political or economic news to move the markets much Friday in either direction. While it is known that the Obama stimulus plan is likely to be voted and passed by both houses of congress before the week comes to a final conclusion, there were no takers betting on this.
In fact, quite the opposite happened when the Obama administration announced today that they had a plan to help stem foreclosures. Though the market rallied for a moment, it was all in vain as selling quickly took over and cast a cloud over the remainder of the day.
You see, a week or more ago the Obama administration announced that they had a bank recovery plan they were going to announce on Monday of this week that would settle this banking problem for once and all. The Vice President even got in on the action by pronouncing along with Goldman Sachs officials that it is going to take at least $2-4$ trillion to properly solve the banking crisis.
And what did Mr. Geithner do for President Obama in his first outing? First the administration postponed the announcement until Tuesday, saying that they were concentrating on the important stimulus plan. But when Geithner finally spoke on Tuesday and Wednesday it was as though we were watching a college freshmen give his first college paper.
The bottom line was that the administration was going to start with $500 billion and somehow convince private capital to help with relieving these troubled and toxic assets from the balance sheets of these poor banks. He actually said that the details hadn't been worked out, but the administration was going to try things that have never been tried before and they might make some mistakes along the way. (I had the uneasy feeling that they wanted the market to tank that day!)
WOW! Did the market ever show its displeasure to the unprofessional and juvenile presentation from our new Treasury Secretary? Tuesday's sell off was the largest market decline since Obama was officially elected President.
So what do you think is going to happen when Geithner or Obama steps to the microphone next week and delivers Act II of this play? Will there really be anything of substance regarding foreclosures that will bring the market around to applause rather than a chorus of "booo" selling?
It hasn't happened so far, and I don't hold out much hope that this is going to be any different. …But - maybe because the public now has extremely low expectations after the first Geithner performance it will "be different this time".
In a MarketWatch article by Kate Gibson today, we learned that nearly 400 of the S&P's 500 companies have weighed in and reported a collective loss -- even excluding financials.
" This is the worst, after the sixth quarter of negative growth, it will be the first quarter ever of negative earnings," said Howard Silverblatt, senior index analyst, at Standard & Poor's.
A sixth quarter of negative growth ties the prior record set when Harry Truman was president, and ran from the first quarter of 1951 to the second quarter of 1952.
" And next quarter we're expected a new record of seven quarters of negative growth," Silverblatt said.
One would think that with the drastic drop in stock prices over the last six months that at least the price/earnings ratios would look favorable and perhaps point to "cheap stocks" – some that could be picked up at bargain prices.
Not so!
Mark Hulbert countered by clearly illustrating that earnings are actually falling faster than share prices, if you can believe it.
Here's today's investment pop quiz: Where do price/earnings ratios stand today relative to several months ago, as well as to the beginning of this bear market in October 2007?
If you're like most investors, your answer to this pop quiz is that p/e ratios have come way down. After all, the stock market - which, needless to say, is the "p" in the p/e ratio -- has fallen by more than 40% over the last year and a half, and by more than 30% over the last four months.
But if that's how you answered, you just failed the test.
Based on earnings on an "as-reported" over the trailing 12-months, the p/e ratio for the S&P 500 index stood at around 20 at the stock market's top in October 2007. At the beginning of 2008's fourth quarter, furthermore, the ratio stood at 25.4.
Are you sitting down?
The comparable p/e ratio as of Thursday night, based on data from Standard & Poor's, is 29.1.
How can this be, you might ask?
The answer is simple: Earnings in this bear market have fallen even faster than has the market itself. And no matter how fast the "p" in the ratio is falling, the ratio has to climb if the "e" is falling even faster.
Indeed, today's p/e ratio is higher than 97.8% of the monthly readings dating back to 1871, according to data compiled by Yale University Finance Professor Robert Shiller. (MarketWatch, Feb 13, 2009)
The triangle of trading that has persisted over the last two months is looking very tired, with prices falling back to the rising support trend line numerous times and breaking through it recently. An advance to the top resistance trend line is looking more and more unlikely as prices now hover right on the lower support levels.
The public, traders and investors all need to be positively moved by the passing of the stimulus plan this weekend, the further development of a "real" bank recovery plan and the much awaited new foreclosure tourniquet to be announced early next week for prices to advance. Sounds like a pretty tall order.
Stranger things have happened, though.
The market remains mired in a sideways trading pattern that is frustrating and challenging the patience of the bulls, who wonder if they should keep pulling their wallets out or go sit on some pine for a while. The bears have gotten their breath back and if they are now substituted into the game we are going see the markets back at the November lows.
Remain defensive.
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