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March 5, 2009

No Respite in Sight

Another day, another drop without an end move. The further stocks prices retreat before the climactic sell is triggered, the more likely we are to see the low 500s on the S&P 500. In fact, a drop to SPX 480 would unwind the entire tech bubble. We only have Alan Greenspan's policies to thank for this debacle. If the banks funding LTCM had been allowed to fail in 1998, and if we had let the system clean itself out after the Y2K bust rather than turning to the artificial stimulation offered by printing presses... well, you all know the story. Let's look forward.

stock index chart

There is really nothing in the way of significant support between here and SPX 480. I guarantee you this world is not prepared for such a drop, but when I learned that Obama got his mug on TV yesterday to state that stocks look cheap for long-term investors, I became even more convinced that this fall will extend to a nasty end.

A question on many a mind this week is whether the market will continue its plunge directly into a panic or whether some sort of bounce will crop up first. Let's have a peek at a couple of our favorite indicators:

stock market indicator

stock market indicator

A brief rally to relieve pressure from NYUD followed by a final plunge to draw the public into puts would seem to fit. The point here is that a rally is not out of the question, but I'm certainly not going to get long to try to catch one. One way or another, I see an ending panic sell coming, and until we get such a panic or I become convinced otherwise, I'm staying short.

Precious metals turned higher today just when they needed to do so to keep the rally technically alive. Their 3% moves were a great benefit to mining shares, which popped a healthy 5%. I added to my GDX position today and am considering piling on additional silver contracts.

Speaking of commodities, I have a suspicion they will return to bull status in stealth mode much like precious metals. With economies collapsing all around us, who really expects any demand to materialize (<== what an appropriate word!) for commodities right now? Well, I do. Why? Because there are dollars everywhere and nobody wants them. Yes, I realize the dollar index is rising, but that is mostly a factor of the dollar being worth marginally more than a piece of toilet paper than the next currency. There are resource wars in our near future. Governments know it, and they will soon be trying to exchange their paper for real stuff. Nobody needs fresh resources more than the Chinese, and no country holds more Treasuries then the Chinese. Guess what that means for Treasury prices?

treasury bond chart

I added an initial TBT position to my longer-term positions. If we get the climactic sell in equities, I will add more TBT or perhaps sell bond futures.

Tomorrow morning brings an employment report which also means we'll likely have a large move in the morning. I'm not really concerned about the direction, though if it happens to be higher, I will pile on more index shorts. Remember that the market tends to use news as an excuse to go where it already intended to go, and right now the charts say down.


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