Market Comments: 4-20-2009
After an unprecedented six week rally in the broad market averages, I expect that before too terribly long we will have to take a breather. How sharp and deep that “breather” is will determine my opinion about the longer-term health of the stock market.
At present, I’m a bit skeptical as I try to keep in mind that typical bear market rallies are very sharp, very quick and can post some impressive return numbers. The recent rally off of the early March lows fits this criteria to a “T” and so I’m cautious.
This might be the week that we start the slide back down… last week’s action closed near the top of the weekly range and volume was off from prior up weeks: Maybe an indication that we’re losing a little steam here.
From a psychological perspective, I think many are making the assumption that we have seen the lows and folks are starting to get a little “antsy” about maybe having missed an opportunity here… This is another sign (albeit anecdotal) that maybe this is a nasty little bear trap that’s about to be sprung.
A long term cyclical signal might be fired off if the market is still positive at the end of April. This isn’t always a 100% “all clear” signal though. We also saw a cyclical upturn happen after June of 2001, but it was “swamped” by even bigger factors at play. In that case we were indicated to get out of the market very quickly (by July 6th, 2001… and at a very small loss… about 1.5 to 2%).
Given the fact that “getting swamped” by super-macro factors seems to be a reasonably possible outcome, I can’t see a single reason to be too aggressive here. For our strategy, we are content to work with the intermediate term indicators (weekly) and they are showing us that this market has moved above the point where we want to be jumping in right here. It will be most prudent to wait to see whether this next cycle selling bout has any real teeth to it and then take our cues from there.
