Market Analysis 2008

MARKET ANALYSISLast entry: 1.29.08

The upcoming FED meeting is front and center this week. Our general take on this meeting is that a problem caused by low interest rates will not be solved by low interest rates. Other means will provide more help.

The central question is where the cheaper money will go. In our opinion it will not go towards real-estate, prices have not dropped enough to entice buyers. Banks and finance companies will take a good share of it to fill holes in their balance sheets. Some will go toward stocks but that market will become overpriced quickly. That leaves commodities and gold as the recipients eventually. While the gold market is really a greater fool market, you only buy it because someone else who waits will pay more for it, it does serve as a defacto currency measure. In that context the debasing of the dollar is a floor to this market.

So what will the FED do? In our opinion:

  1. No change would indicate they made a mistake last week,

  2. Lowering 0.25 would signify to everyone but the market that things are stabilizing,

  3. Lowering 0.50 would indicate that they are really patsies for the market.

Please take note that the S&P 500 is moving gradually into the lower part of the overvalued area above 1360.

Price / Earnings Ratios on the S&P 500 are a solid indicator of when a secular market cycle is topping or bottoming. An in-depth analysis based on work of Ed Easterling of Crestmont Research and charts from thechartstore.com is being added in the PRICE / EARNINGS RATIO section.

We heard yesterday that Hedge Funds in total have lost 3 or 4 percent this year so far. How could this be, they are hedge funds. Truth is, most are regular funds that use leverage. In our opinion the SEC should change the name to LEVERAGE FUNDS and leave the HEDGE FUND category for funds that really follow a long/short strategy.

Tuesday 1/22/08 Comments

Today I am just restating the comments of last Wednesday and Thursday because my underlying sentiment remains.   The political overtones will rule once this panic subsides.

Obviously, getting out of short S&P futures on Thursday at 1357 was very premature but being 100 percent in cash coming into this week opens a lot of opportunities.  Today’s FED fund cut will help although it is not the answer.  More on this in our new website later today.   A swift flush of the market to the 1228 area on the S&P should finish the panic in the next couple of days, but you may not get it as the administration is trying everything to stop this decline.

Thursday 1/17/08 comments:

On the active trader line I advocated exiting S&P short positions at 1357 basis cash .  This is an extreme contrarian market call but the bottom pickers are scared to death today and even Jim Cramer is bearish.  A close above 1363 will allow the political games to begin with who can provide the biggest give-away in Washington.

Wednesday 1/16/08 comments:

The S&P market is currently bounded by a trading range of 1363 to 1461 and at the moment is close to the bottom of the range.  For me a close below 1363 would signify the verification of a bear market and a quick move to the 1270 area, the 20 percent decline area near the 2006 lows,  but investors are still trying to “Pick Bottoms” and rallies to the top side of the range are certainly possible and probable first.

All the action over the past six months has just been staging and investors still have good gains over the past two to five year time frames.  The defensive posture I have been talking about for a long time will start to become relevant if the 1460 area cap holds the market on rallies over the next few weeks.   Gold and oil have topped and probably grains also.

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