NOTE: This Trading alert was originally emailed to subscribers at Ritholtz Research & Analytics on Mon 9/18/2006 10:30 AM EDT.
This is posted here not as investing advice, but
rather as an example of a trading call for potential subscribers. We
expect to post future advisories in a similar manner — after the call,
but in the correct chronological location on the blog.
That’s one of the questions I ask myself all the time. The
answer is a combination of economic shifts and technical characteristics that more
typically underpin healthier markets.
On the economic side, if things started to improve across
several metrics we track: Income and wages, Consumer debt and spending
patterns, interest rates, and money supply, it would bode well for the macro
environment. Conversely, if the environment got acutely worse – a rapid
spending drop off for example, or a surge in unemployment, that would move us
closer to a cycle bottom, and ironically make me want to start thinking more
On the technical side, this market seems to want to go
higher, only in an ugly way. The internals do not impress: The A/D line – the
number of stocks advancing versus declining – is unimpressive. The new 52 week
High/Lows is particularly ugly. They certainly do not reflect broad
participation in an up-move by lots of equities – and that’s what we typically see
during strong sustainable bull moves.
Make no mistake about this: we are in a period where the
reward is modest at best and the risks remain high. These technicals are why we
are not very long here, and continue to raise cash on rallies, but the price action
– grinding higher regardless – explains why we are not yet short. It is a
“tweener” market, and that implies one undergoing a transition.
The past few weeks saw a lot of headline risk come out of
equities: The Fed on hold, Oil process down 18%, Gold pulling back to support
at $580. While Iraq remains
a morass, the Iran
nuclear problem is also unresolved, but at least the parties seem to have ratcheted
down the saber rattling.
Sentiment may also help explain why the market has been so
reliant: As long as so many people were looking for a collapse or a correction,
it was unlikely to have happened. So this spate of good news allows the bulls
to reassert themselves, and that perversely makes the correction more likely.
In other words, it won’t happen when everyone is looking for
We continue to watch and wait for our pitch to move to the
A few items to look for today and the rest of this week:
1) We take a look at the S&P 500 Homebuilders Index,
along with a few components (today);
Also. be sure to check out these two data sets on Real
-Comstock claims: The Hard Landing
For Housing is Already Here;
– Typical profile
of sub-prime mortgage applicant, according to a San Diego sales manager of a branch office of a national lender;
2) A special situation, low priced stock we will be recommending
(today or tomorrow);
3) CNBC TV: This
week, Kudlow & Company moves to
8pm, and taking its old slot on a one week trial will be Dylan Ratigan’s Fast Money. It’s a new program that
CNBC thinks can be an anchor at that slot. They are gearing up in advance to
compete with the upcoming Fox business channel.
I have been contacted by the producers of the show, and asked
for feedback – about the format, content, segments, guests and 4 panelists. If you have ever wanted to help shape a new tv
program, then feel free to submit comments – good and bad – to me about your
take on the show. If you want to remain
anonymous, let me know that also.
4) I found this chart (via Matt Blackman of EquiTrend Weekly Market Watch) particularly insightful:
More interesting things to come this week . . .
September 18, 2006
Here is the thing that makes me least bearish recently.
“I recently analyzed data covering trading on the New York Stock Exchange from February 1, 2006 to July 31, 2006 and found that more than one in every four shares traded every day are sold short.”
One in four?!