I spoke with TheStreet.com’s Liz Rappaport yesterday about the markets; she very much captured my perspective:
"The bounce [from the June lows] has run out of steam," says
RealMoney.com contributor Barry Ritholtz, chief market strategist of
Ritholtz Research and Analytics and president of Ritholtz Capital Partners, a
New York-based hedge fund.After losing 7.6% from its peak on May 9, the S&P 500 had bounced back 5%
through the end of last week from its June 13 low of 1223.69. Ritholtz believes
that bounce has run its course and a retest of the major indicies’ June 13 lows
may now be in order. The S&P and the Dow are still up 2.8% from their
respective June lows while the Nasdaq is only up 0.85% from its June lows.A successful retest of those levels — of about 10,706 for the Dow, 1224 for
the S&P and 2072.50 for the Comp — is the most likely scenario, but is
certainly not guaranteed. A hint of a more serious decline (and bear market)
could be seen Wednesday as many exchange traded funds and indices broke through
their 200-day moving averages."
Note that the Nazz JUNE 13 intraday low of 2067 is about where we are this moment.
If there is going to be a bounce in the QQQQs, this would be where it should happen from . . .
>
UPDATE: July 13, 2006 2:24 pm
Glad to see that Dick Arms TRIN index see sthe same thing
Selling’s Overdone
7/13/2006 2:21 PM EDT
I think they have overdone the selling on the news out of Israel, and I am in the process of contacting my more aggressive institutions and telling them to do some buying. Based on my index, the TRIN, I am suggesting going against the crowd. I’ll have more specifics in my column Friday morning.
>
Source:
Bounce Takes a Header
Liz Rappaport
TheStreet.com, 7/12/2006 6:06 PM EDT
http://www.thestreet.com/_tscrss/markets/marketfeatures/10296463.html
…and let’s not forget that when the fed stops the markets usually go down. and as of yet I don’t think we’ve seen any significant selling on the part of retail buy and hold 401k types, and at some point, those ugly memories of 2000-2003 are going to start hitting them, and they will, if things get much worse.
Ok, so if the S&P is slowly sinking, what in the world can one do in a typical 401k portfolio to hedge against it? I work at the #2 pharma company and we don’t exactly have a huge salad bar of things to choose. It’s all small/med/large cap funds plus some foreign/”growth” stuff.
There is no option to divert contributions to cash, and it’s crazy not to contribute. What are some of you who are experts in this field doing with your personal contributions?
Well oil shoots above $76 a barrel and stocks tumble.
Question is this due to Mid-east tensions or is it the begining of the long decline into the “Bear Market?”
Is the geo-political activities driving market actions or is it merely part of what some here believe is the inevitable equity markets decline.
I vote it is too early to tell. I still hold my belief that growth going forward will level off and some areas of the market are oversold.
Correction is inevitable and I wouldn’t be looking for it right now. I expect it will happen in September.
BTW!!!!
Plastic Jesus figurines sales are way up. Ticker symbol CHRST. Options symbol CHRSTSAVS
If you need to humm along as your portfolio tanks cut and paste the link below.
http://www.turoks.net/Cabana/PlasticJesus.htm
Lyrics are provided
This is nothing more than a random flux due to Oil speculation over the middle east tension BS.
The real bloodbath won’t get started for another 2 months.
NotaPro, you might check to see if your 401k may allow you to go to bonds in the form of AGG or TIP or TLT.
NotAPro – You could put it into money funds.
(Not a pro, either).
I’m somewhat inclined to agree with Cherry. The cycles work I follow says that the mid-June low was a big deal. We were due for a trading cycle high sometime between July 5 and July 14, and we’ve definitely got that. The window for a trading cycle low is roughly July 24 to August 11. Given the way the market is acting right now, I suspect we’ll make our low in the earlier part of that timeframe rather than later.
Hm ok, here’s what we have:
SSgA Yield Enhanced Short Term Index Fund (100% cash)
Something called the Stable Value Fund (The Fund is comprised of a combination of investments from two stable value mangers, Dwight Asset Management Company and PRIMCO Capital Management)
SSgA Lehman Aggregate Bond Index Fund (90% AAA bonds, avg weighted maturity 7 yrs)
Any of these of any use?
I guess to answer my own question (and not to sound like a complete know-nothing), I’ll put some in the MM Fund.
you guys should really sign up at good place – one that offers short-selling. We are making a killing as the R-word is finally being used by professionals.
And on cycles: S&P 500 has scope for a move to 1060 within the next 12 months.
Good Luck Out There!
Not A Pro:
1) I cannot believe your 401k doesn t have a cash / money market option; That would be awful; There must be some option if you sell the funds you are in and sit in cash;
2) There are always the various bonds funds mentioned above (or PIMCO) to hide in;
3) The new ETFs or Rydex inverse funds are also attractive, but you msised the last window before the move down its late in the move down — I suspect you will get another chance later in this year to get short at a better price.
Not sure I would be hiding out in bonds either. Still a good bit of interest rate risk there, especially since you can get 5% in your money market with no risk other than inflation.
Why do you wanna be trading your 401 anyway? There’s a shitload of balanced funds out there that absolutely killed it over the last six years (MFS, American, Fidelity, Dodge & Cox, Van Kampen, Vanguard and Oppenheimer immediately come to mind) with very small drawdowns (ie MFS Total Return was UP something like 12% between Jan 1 2000 and Dec 31 2002).
Please note these are not specific investment recos. Hard to believe a company as big as MRK can’t get a better 401k
Notapro, here’s my conservative investor view:
If you’re not following the market closely and don’t have a lot of confidence in your ability to time the market, shorting is something you should probably stay away from.
If you’re worried about a potential drop in the broad market or worried about inflation, reallocate more of your holdings into the money market. The longer-term bond funds have been suffering because inflation is rising, so you want to wait until inflation looks like its leveling out or dropping before you dive into that fund.
My 2 cents, anyway.
So Barry, have we moved on from Whackage to Shellackage?
Kinda funny when oil is hitting new records…a purported “why” behind the selloff, yet energy is flat to down. XLE off 1%, XOM & CVX flat to fractionally higher, coal off about 3%.
Fun market to watch, but only because I’m mostly in cash (75%) and hedged (although that short Qs/long DIA pair isn’t acting right, lol)
Usually the reason for using the 401k is the company match, but the average retirement account is like a straight jacket choice wise.
If this is true for you then you might think of reducing your contribution to the match amount (you don’t want to give that away)and send the remainder to your own IRA where you can use whatever investment vehicle that fits at the time, like cash, MM or the bonds Barry suggests.
say Byno,
are you still long the Q’s? just picked up some calls before the close, not sure if that was wise at this level.
Whackage to Shellackage!
Check your package —
We are moving to a full blown market Crackage!
Fun time next week too with PPI, CPI, FOMC Minutes, and of course, on the 19th, Bernanke is in congress.
I like others have thought the big move down would happen later in the year but given the fact we are breaking through many technical levels I am having second thoughts. I have been adding to my short positions the last over the last couple of months instead of covering like I planned on doing.
What is everyone else’s rational is that the big move down cannot be starting now instead of a couple of months. Just curious because I have changed my mind to this possibility and would like challenge my new position.
I am not betting the farm on this mind you but just tacking a different way than originally planned.
Every 401K has a cash option of sorts. Be in 90 day treasuries, MM or something. I don’t have the ERISA guidelines in front of me, and I am not an ERISA qualified attorney but I am quite confident that the liabilities of restricting your choices to equities only would be a hey day for the one million+ lawyers in the US. Especially since many companies in the process of dumping DFPP’s for 401K only retirement accounts or only offer 401K retirement options.
“So your employer made you put your 401K savings in stocks? And the market is down 50%? And now you cannot afford to retire? Yet, you told them you wanted choices for something more conservative?”
Ain’t no one on this board gonna give you advice but, that said, before you sh*t your pants which it sounds like you close to doing, if it were me I would try to think a little rationally before pulling the trigger. We have seen many stocks go to hell in a hand basket so selling now might not be the swiftest thing to do. Some indices are still in the process of topping or resting or whatever hindsight will tell us. So, if we don’t drop below 10,700 and I had not already moved to cash, I would wait until that happened. The downside is minimal and any bounce might be substantial enough to recoup any losses. Otherwise, there is some chance you might be selling closer to a shorter term bottom. Not that I see anything resembling a bottom but …………JMO
Well I know the kind of investor I am, or at least I think I do. I’m not going to try and time the market, or do a lot of technical analysis. Just not me, so I’m not going to half ass it. However, if the market is not going to performing in the near term, I’d be stupid if I didn’t change my allocation.
Barry I was wrong, we do have a MM fund. I just want to keep things simple and reasonable.
Thanks for all the advice guys. BTW, I’m at GSK not MRK. I keep forgetting that we’re technically a UK company.
Appreciate the comments BDG123. Actually I’m not at all panicking. :) I just don’t want to ignore obvious market fundamentals and be buy & hold come hell or high water, if you know what I mean.
I’m not going to move in all cash anyway, I’m ~20% in cash currently, I just want to bump it up is all.
All the DIA puts are sold, I’m in nothing now.
Closed out the Qs on Tuesday. Didn’t post it because I thought, what the hell do people care about me taking a 5% haircut for?
I sent Barry an email earlier today about this, but it bears repeating: if Hezbollah wants to get Iran or Syria involved in this thing that started the other day, a wider war in the Middle East puts us in an ugly way.
All funds in my 401k have been moved to cash for the time being. If I’m going to go long in this market, I’ll use the IRAs and taxable account so I can be a bit more flexible.
thanks for the update, Bynoman. Regarding the ME situation, though it could very likely get worse, hard to imagine full scale war, imo. We’ll just have to see. I did picked up a handful of the Q’s betting things don’t get much worse.
It seems to me that the current market conditions are a combination of:
1.current events/oil prices;
2.The yield curve inversion persisting and getting worse; and
3. The fact that the market is anticipating a correction in September/October and the smart money is getting out now–which is essentially accelerating the correction that was expected this fall.
If this continues, the Fed will have to pause in August.
Bruce Sherman
I don’t think the Hezbollah tail is wagging the Iranian dog. I think it’s the other way around.
Iran is using Hezbollah to force Israel into a two-front war, and pump up the price of oil while the deadline for Iran to respond to the nuclear proposal draws near.
Forget Israel and Lebanon, you’d have to be nuts to be long US equities just shortly before the oil markets panic about Iran’s response to almost certain UN Security Council resolutions.
And the oil markets might be right. Iran is doing everything it can to provoke a rise in the oil price to raise its relative standing.
We’ve gotta watch this oil thing. Those who have it are starting to see the power they have, and how inept the US is to do anything about anything. They see high oil prices as the way to kill the giant, and they’re right. They see the price inelasticity as well as we do, and they like it. Plus, high oil prices puts more of the US in their pocket. Win/win/win for them.
Do what he may, if they succeed, Bernanke will have no way to stop this commodity inflation from flowing through without causing a real recession that brings a very inelastic oil down on a genuine demand basis. And you know the results of that problem. Lose/lose for the US.
This is a very dicey time to be long US equities.
Bruce
I agree with your point #3 completely which is why I made my previous comment. However I believe #1 is just an excuse not the real reason.
I would still like to hear other peoples rational on why the big move down cannot be starting now instead of a couple of months.
You want bearish, how about yesterday’s post from Nouriel Roubini?
Excerpt:
What is the implication of all of this for the various asset classes? Put it simply, in 2006 cash is king; or, if you are patient enough, short all sort of risky assets. Housing will flatten in the US and across the world. Equity markets in the G7 will fall year-over-year as this recent turmoil episode is not a temporary slump but the beginning of a bear market. The emerging market slaughter will continue, especially for countries with weaker fundamentals; their equities, currency and local currency bonds and foreign currency bonds bearish slump has not yet reached the bottom. Commodities will fall across the board, including oil and energy when the global slowdown becomes clear. The only caveat is that Iran and geopolitics could spike further oil prices this year; and we will have a military confrontation between the US and Iran by 2008 that will lead to a global recession as oil prices will double during such confrontation. The dollar will weaken, especially relative to Asian currencies. Credit spreads will increase for all sorts of corporates as the number of distressed corporates will increase and risk aversion will be higher. Easy money is over and this implies lower prices for all sorts of risky assets, higher volatility, higher global risk aversion and more market turmoil. I would not exclude another LTCM style episode of systemic risk given the risk of unraveling of highly leveraged carry trades and the end of easy liquidity: triggers could be a disorderly move of the US dollar, perhaps following trade war threats to China, leading to a 1987-style stock market crash; or MBSs interacting with a housing slump and the hedging activities of GSEs; or greater corporate distress or a Ford/GM entering into Chapter 11 triggering a massive sell-off in the murky, non-transparent and untested credit derivatives.
Homebuilder goes splat:
D.R. Horton third-quarter sales orders fall,lowers year view
Last Update: 5:28 PM ET Jul 13, 2006
SAN FRANCISCO (MarketWatch) — D.R. Horton Inc. (DHI22.86, +0.03, +0.1%) after Thursday’s closing bell said third-quarter sales orders fell 7.3% to $3.8 billion, or 14,316 homes, from $4.1 billion, or 14,980 homes, during the same period in the prior year. Donald Horton, chairman, noted the “difficult selling conditions the homebuilding industry is experiencing.” Due to the conditions, D.R. Horton said it expects per-share earnings for the third quarter of 93 cents, and lowered its per-share view for the year to $3.65 or more on 50,000 homes closed. In April, the company said it expected fiscal year per-share income of $5.25 and $5.35.
Byno:
Regarding Hezbollah, Iran and Syria, let’s not forget that Iran and the United States are presently involved in a very complex set of negotiations over the future of Iraq. Hezbollah kidnapping some Israeli soldiers may be Iran’s way of pulling our chain because they don’t like what’s going on in Iraq. Perhaps the U.S. is tilting too much toward the Sunnis for Iran’s liking?
Also, the last thing the U.S. needs right now is a big blowup in the Israeli-Palestinian conflict to complicate its efforts in Iraq. So Israel is constrained in what it can do so as to avoid complicating matters for the U.S. Hence, according to Stratfor, Israel’s response is “measured,” therefore this little crisis is going to drag on for quite some time.
If the Iraeli-Hezbollah crisis is what is driving the market, expect the markets to be driven down.
“Full speed ahead it is Captain!”
From Reuters business news this afternoon:
The Federal Reserve will stick to its mission of avoiding a damaging rise in inflation, Minneapolis Federal Reserve President Gary Stern said on Thursday.
“It is the responsibility of and is within the ability of the central bank … to avoid inflation and provide for a stable low inflation environment,” Stern told business leaders at a lunch held by the Minneapolis Fed’s Helena, Montana, branch. “We at the Federal Reserve will adhere to that objective.”
Corrections are an interesting thing. After the initial drop, we tend to enter a trading range. Folks get more pessimistic each trip down to the bottom of the range. Eventually, even the last bull gives up and throws in the towel. They give up emotionally, too. So much so, that as the next rally advances, they are skeptical and miss the largest gains that occur early in the advance.
Just thinking out loud.
The sell off will continue:
– While the $TRIN ended up over 2.0 and is more of an extreme number, the $VIX Broke out today.
http://stockcharts.com/c-sc/sc?s=$VIX&p=D&yr=0&mn=4&dy=0&i=p31548826132&a=80514768&r=4114
The $VIX basically inversely correlates to the market action. Look at the break out, its legit. Its been confirmed by 4 different reliable technical indicators.
– All the major indices closed at their lows of the day.
– The SPY, IWM, DIA, and Q’s continue to sell off after hours.
– The SPY closed @ 124 and is now down as low as 123.65 after hours. Now you can argue that liquidity isn’t there in after hours, but those SPYs usually follow the futures, along with the rest of the ETFs.
– From a technical perspective most charts are all damaged, and beat up.
– Look at the volume today, we had a distribution day with out a doubt. People have been asking “Where’s the volume?” The last few weeks, and I really think that we were simply setting up in a bearish flag.
http://stockcharts.com/c-sc/sc?s=$COMPQ&p=D&yr=1&mn=0&dy=0&i=p36781378547&a=80518117&r=6396
What’s going to bail this market out? The tensions in the Middle east aren’t going to calm down anytime soon. On top of Iran, North Korea, Nigeria, and India, we now have to worry about Isreal bombing the hell out Lebanon over 2 soldiers.
Every single piece of bad news has been sold off with out even looking back. Half of the good news we get doesn’t even last long.
Look at CHAP (the steel company), which crushed earnings yesterday after the bell, but between yesterday and today its down over 10%. It guided in line, and revenues were decent.
Look at the other “leading” stocks in todays market and recently. GOOG, AKAM, MMM, GRMN, INTU, JCOM, QCOM, HANS, JOYG, ATI, CME, SHLD, CHH, etc all continue to get whacked or lose support at key levels. All of these stocks were, or are considered market leaders or atleast have been performing better than the rest of the market.
It doesn’t help that the SMH/$SOX is at its lowest level in over a year. The $NDX also is at a yearly low. These are the things that are supposed to LEAD the market, yet they continue to set new lows.
The recent up trendlines in all the major indices have been taken out, and the series of higher highs and higher lows over the intermediate term has been negated on the $INDU and the $COMPQ. Now I’m not technical expert, but I know that’s not a good thing.
The 200 day MA’s on all the indices have all been broken and we’re in the middle of the summer. The bears have clearly taken control. Who is really going to want to try and bottom pick here after we’ve already essentially started taking out the June lows?
We have 2 fairly big earnings tomorrow morning before the bell, and I think the way the market reacts to those early on will tell us alot. Then again, people might just buy up GE as its a defensive play, but does anyone really think EMC will meet or beat expectations? That certainly can’t be good for the semis.
The next few days are loaded with economic data, and Bernanke speaks twice next week. Blame what you want for this market decline, but buyers can’t be feeling too good about picking anything up and holding it over the next few weeks.
I’d atleast like to see the market make some higher intraday lows (and KEEP them) before I dip my foot in.
Barry, I have been reading your work for a while, and am trying to sign up for your market newsletter.
You mentioned a while ago that development of the research site was done by people in India.
No offense intended, but it shows. It is relatively obvious that they started with the Joomla! content management system (a good choice in my opinion) and just did a little bit of minimal customization.
Though minimalism can be a good thing, minimalism sucks when it is applied to clarity.
For example, when you try to sign up for the site, you are given a checkbox that states the following:
“Options Oriented Email
Check this box to not recieve options oriented email”
Aside from the lack of familiarity with the rule “i before e EXCEPT after C”, the double negative (The check box is a YES or NO choice) makes it unclear whether I will get options oriented email or not.
I would like to get your insight on options trades. What do I do?
Also, while we are at it, what is the difference between Membership Type 2
– Ritholtz Monthly Marketletter ($39.95)
and
Membership Type 3 – One Month Marketletter Trial ($39.95)
One month non-recurring trial to Barry Ritholtz’s Marketletter. This subscription is only available to new members.
Obviously the 3rd choice is for new users only, but is the product received any different from choice #2? If they are the same product, why even have two choices?
If you can answer my questions, I will immediately sign up for one month. If I like what I see, then I will go for a year.
Thanks in advance, and keep up the GREAT work!
Are any of these clowns on Kudlow ever held accountable for the nonsense they spew….it is scary to think they invest peoples hard earned money.
It is also fascinating to hear the subtle (and the not so subtle) change in language of these guys…..These jokers from 5th 3rd have pumped the economy on every show. Now tonight they are calling for a “soft landing”. Battapaglia is absolutely cluesless and good luck to whoever’s money he manages. The T Rowe guy is now saying stock are “interesting” which was probably changed from “cheap” due to the recent sell off…..and Larry even left out his “greatest story ever told” schtick.
I hope everyone remembers how wrong these clowns were when this is all over. Somehow I have a feeling they will all be saying they were in cash all this time when the smoke clears…..of course they are pumping investors cause they make their major money in fees charged to the uninformed.
And where has Cody been…amazing that the Nasdaq big cap pumper has disappeared just as the Nasdaq has done a header…..he must really be loving Apple, Microsoft & Dell now!!!
hey barry, didnt your buddy Nenner say July 10 the beginning of the whackage? isnt he operating out of Jerusalem? question: did he have inside info? yeeeehaaw
Well here’s my take on things-
_From a technical standpoint, all of the daily index charts went over the cliff today, but it’s a good idea to then have a look at the weeklies. What I see is $NDX in serious trouble, but $INDU, $SPX and $RUT all coming to rest more or less on top of major trendlines that go back two years. This support was briefly violated a month ago, but is essentially still intact.
_It may be that this is when $NDX starts the big slide, but it’s full of crappy companies and you would expect it and $RUT to lead the way down. $SPX and $INDU will probably show some modest strength and will not fall as far or as fast, so it might be that there isn’t a single plunge but a series of them index by index over the next month.
_I guessed wrong when I closed my SPY puts this morning a little after 10 when it looked like things were reversing. That’s ok, I still made 20% after holding them for exactly two weeks.
_I don’t think that smart money is getting out now, smart money has been sitting and watching or has been short since May or earlier.
_The stuff in the ME was a good excuse for a selloff, but is hardly a cause. Something has been going on with oil futures since the end of June and it isn’t good- mysterious big volume buyer which I am going to guess is China, but could even be some proxy for Iran (!).
_My current plan is to pick up some more SPY puts on a sucker’s rally, but roll the strike down from the 138s that I held to a level that will let me keep the spoils that I just liberated from some unknown cuckold. It may take a few days, but there will be an opportunity at some point to board the train again.
So cash is nice in the interim.
Per Stratfor, Israel is calling up its reserves and preparing for a full-scale invasion of Lebanon.
Get ready to Rock ‘n’ Roll!
could we get any more bearish here on this site, sheesh. any other contrarians out there? or at least thinks that if the ME doesn’t go to hell in a hurry that we might get a bounce, however muted it may be.
seriously, we get all the talk about average PE since 1865, avg PE since 1980 or 1995 or when the yield-curve’s inverted or the sun dont shine, or in the 2nd year of the second term of the ugliest Lame Duck in the history of the US. but i ask a simple question: what’s the average PE in times of world war? look out belooooooooooow
“hey barry, didnt your buddy Nenner say July 10 the beginning of the whackage? isnt he operating out of Jerusalem? question: did he have inside info? yeeeehaaw
Posted by: scorpio”
LMAO! ;-)
Bruce…I’m not sure that I understand your logic. Isn’t the Fed’s job to manage inflation rather than pander to the market? Admittedly, it appears that from some of the hissy fits from some pundits (not you! not Barry!) they think otherwise. So the market goes to hell and inflation continues to rise. Fed still has to tighten. (and let’s hope that the other central bankers do so in concert to quell liquidity levels). Inverted yield curve? We should wish for it to stay inverted. Going up on the long end might be a requirement if we are to entice others to buy our !$%#$#@ debt to fund our ^$#e@Q$% purchases. And the long end will portend higher rates for our consumer-driven society. Now, it’s not just metals and oil to be concerned about but GRAIN! ONe more inflation factor. Geez!
at least we can get another 200 points down in the a.m. …… shake out so really weak hands
do you think it’s OK to buy more QQQQ puts or are the gammas too high to play ?? i think we can crash over the weekend
Hoo Boy! Some good commentary here — politics and economics are interrelated, and do not necessarily follow clean good-bad, Dem-Repub lines. Geo-politics is fascinating, and Iran seems to be kicking our ass. If we hit back too hard, oil prices sky-rocket and Repubs lose power. What do you think they will do?
Good stuff all. That Dave guy is a man after my own heart. Can I add SNDK to the list of bellwethers that have died in the last week on HEAVY VOLUME?
Down 20% in last 8 trading days.
The first half hour and last half hour have been so bloody every day it seems.
For those who wonder where the bulls are, they are on that other site where shorting is “Un-American.”
“This isn’t Russia, is it Danny?” – Ty Webb
Last thought: Asian markets BAD as of 2 AM.
So Barry, which is it? “Crackage” as per your post above or successful retest of June lows as per Rappaport article? I am confused….
In this environment, do you really think anyone will want to hold long over the seekend??? Nuff said.
make that weekend, not seekend. Perhaps a Freudian typo as I seek an end to this selloff?
Dave
Great insights , some of the best seen on this site , keep it up
Dave
Great insights , some of the best seen on this site , keep it up
Thanks vlm, CDizzle.