New Column up at Real Money (02/29/05)



My latest column, "Repositioning Before the Selloff," is up at RM. Its based on our intermediate top call, "The Trap is set: Last Chance to Reposition" from earlier this week.

Here’s an excerpt:

"Yesterday morning, I warned clients to use any lift to sell equities. CNBC reported on the call in the afternoon, and many readers have asked for a more detailed explanation.

Last week the market became so oversold that a corrective bounce was due. We saw that move begin in Monday’s rally. But don’t get too excited yet: I expect this bounce to last a week or so — two at most — before the markets start heading south again in a selloff that I expect to last until early summer, and bring the Dow down to the 8,800 to 9,000 level.

As such, I have been advising clients to use any lift as an opportunity to exit most of their long positions. In particular, I have been exhorting managers to sell cyclical, rate-sensitive and high-beta holdings.

I have aggressively sold equities, and I am now about 50% cash. I expect to be in even more cash by next week . . ."


Repositioning Before the Selloff
3/29/2005 2:15 PM EST

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  1. JT Ploch commented on Mar 31


    Nice sleuthing of the evidence to support your Bearish Position.

    I humbly submit that I come in with the exact opposite conclusion ~ the BULLISH Position.

    We are going to rally hard over the next several months into June and potentially as late as July.

    Then correction; consolidation; and then one final leg up into spring 2006.

    Wednesday, March 30th rally was the ‘real deal’.

    My macro market analysis when talking about the broad market utilizes the SPX first, DOW second, and Nasdaq last. The S & P 500 Index – SPX is MY PRIMARY LEAD SLED DOG.

    The January low close for the SPX was on January 24th – SPX 1,163.75. Yesterday, the March low was on March 29th – SPX 1,165.36. Today we closed 16 points higher to SPX 1,181.41. The highest close since March 21st.

    The January 24 DOW low close was DOW 10,368.61. The March 29 low close was DOW 10,405.70. Today, one day later, the DOW closed 135 points higher to DOW 10,540.93.

    The Nasdaq did close at lower lows in March vs. the January lows.


    Nasdaq is ready to rocket higher with SOX Index as new leader. Internet Index IIX, after tearing its ACL with early year collapse, is starting to jog higher again. And, watch the Biotech Index BTK play caboose and score solid gains over the next several months.

    Here are some reasons why we are going to scream higher:

    1)Rydex Ratio tagged quadruple oversold readings at 1.2. It hit 1.0 at the October 2004 lows and 0.8 at the August 2004 lows. Nova/Ursa NAV adjusted Ratio is at triple oversold at .22

    2)Bearish Percent in Investors Intelligence Survey hit 27.8 – its highest levels since October, 2004 if I am not mistaken.

    3)Bullish Consensus is below 45% – the lowest readings since October 2004 bottom.

    4)American Association of Individual Investors latest reading has 23.2% Bulls and 41.9% Bears.

    5)UBS Index of Investor Optimism dropped 8 points to 74 for March. The lowest reading since November. This is incredible after coming off multi-year highs in early March.

    6)Commitment of Traders smart money commercials are NOW NET LONG over 7,000 Nasdaq 100 futures contracts. They were short the ND futures one week ago. Smart Money commercials are NET SHORT 5,000 S&P 500 futures contracts. They were short over 25,000 contracts into the quarterly quadruple witch 1 week ago.

    7)ECRI Weekly Leading Index just hit a 44 week high – suggesting solid growth in the second half of this year.

    8)The DOW, UTIL and TRAN Index all hit new 52 week highs in early March. This Dow Theory BUY has not been negated. Just consolidating from deeply overbought levels ovewr the last 3-4 weeks.

    9)Lowry’s Short Term Buying Power Index hit its lowest point (51) since the triple bottom in March 2003 (a 49 reading).

    10)Lowry’s Buying Power still trumps Selling Pressure by a mile. Demand for stock is now going to outstrip supply of shares sold in the next leg up.

    11)NYSE Supply of Total Shares Sold Short Hit a new all time high recently. These are borrowed shares that MUST BE BOUGHT BACK. My gut feel says they will get squeezed to cover over the next 3 months in MAX PAIN.

    As always, I reserve the right to be proven wrong.

    JT Ploch
    Market Strategist

  2. Barry Ritholtz commented on Mar 31

    I look at yesterday’s bounce as just that — a move up after reaching a short term oversold condition.

    My original mid year targets were pretty aggressive — 11,700 dow, 2600 Nazz,

    Between decaying market internals, macro weakening, fading stimulus — plus SS reform DOA — I no longer see those targets as viable. My 2006 expectations are even more negative — but from a summer low, I think we can claw back to close break even for the year.

    I don’t reserve the right to be wrong — Its a given ; )

    I’m always pleasantly surprised when it turns out my guesses were correct.

    Final thought: Sold to you! I figure by sometime next week, I’ll sell you some SPYs . . .

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