Mike Santoli has a nice turn of a phrase — “Overshoot Unwound” — in Barron’s this morning. His thesis is the panic sell off from 2008 until March of this year was mostly panicky liquidation. The surge since March 9 is the result of that deeply oversold whackage:
“The idea of a bear-market overshoot phase — when the market goes beyond pricing in weakening economic conditions and turns to liquidation and panic — was first invoked here in July and most recently in October, when the Standard & Poor’s 500 was almost exactly at its current level.
The relentless climb of 30% since the March 9 low has recouped the ground ceded in the disorderly, deleveraging, Depression-recalling, government-is-clueless selloffs of the fall and early this year.”
That rings true.
But so does the criticism that markets cannot be lead by single digit stocks, especially the former leaders of the last bull market (Banks, Home Builders) that were wrecked by their own poor assumptions and bad risk (mis)management.
Mike also notes the “frothy activity percolating” and suggests a rotation to quality from the junkier leaders of this rally might be advised.
While I am less inclined to stay long after a 30%, two month rally — at least until we clear the immediate band of resistance overhead — those with a bullish inclination would be wise to heed this advice.
A junk to quality rotation might be in order as markets digest their recent gains . . .
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Source:
Hindsight From Higher Ground
MICHAEL SANTOLI
Barron’s May 4, 2009
http://online.barrons.com/article/SB124121854787778853.html
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