Contrarian View
Just for fun, let’s look at both sides of this market, pretending there are actual bulls out there. (All kidding aside, there are, even if they’ve been M.I.A. of late).
This market has been plenty heavy of late. The big moves I’ve caught recently have all been on the short side, and bearish consolidations abound in the charts. Simultaneously, bullish setups are few and far between, to say the very least.
But let’s look at the bullish case right now. If I’m leaving anything out, please share it in the comments, but here are a few things to consider regarding those who are counting on a lasting turnaround:
– Nowhere else to put cash right now. This is true, and a biggie. With the bond bubble keeping money managers quite leery, and precious metals already correcting sharply from their recent highs (have you seen gold?), the so-called “safe havens” haven’t been immune to the selling either. Equities are still seen as the place to be going forward.
– Multiples are contracting, value players getting more interested. The biggest difference between a technician and the fundamentalist is how momentum is viewed. Fundies look at low prices as entry opportunities, whereas technicians look at them as downtrends which may continue. These days, the value players are seeing better numbers, which may get more of them involved.
– EVERYONE seems to be sitting on considerable cash piles right now. If this market catches a bid, that cash is tremendous potential fuel for a lasting rally. As prevalent as fear has been on the way down, it will also be relevant on the way back up — who wants to miss the big rally? Nobody who runs money, I can assure you. Underperformance is worse than losing money (sadly) in the world of portfolio managers, so you can fully expect cash to come off the sidelines quickly when signs of stability finally emerge.
The bear is still alive and well, with fresh 52-week lows being made Tuesday in every index. Nonetheless, it’s always wise to look at the other side of the trade. It’s responsible, and it either lets you keep defending your stance or it presents reasons to shift (which the best traders are always willing to do).
Keep an open mind, nothing is ever out of the question in this market.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Jpyskaty | Oct 6, 2011 | Reply
Hi Jeff,
Good article. We are bombarded by constant talking heads saying that things are terrible and will only get worse. They are the same talking heads that were saying the golden days would never end back in July when you switched to cash.
One of the things that you missed mentioning was the dollar. It is at a high point because of the problems with Greece. As the dollar goes up, stocks and gold tend to go down – after all that is what they are measured in.
As people become more aware of the fact that being better than the Euro does not make the dollar wonderful, things may change abruptly. We have our own deficit problems, and while the amount of Greek debt we have IS SAID to have is low, our banks have lent trillons to German and French banks that made loans with it to Greece, as well as insuring those wonderful CDS that they never learned their lessons from.
When people realize that the dollar has feet of clay, the money will move back into the back like a tide. The conditions are also making a QE3 more of a certainty.
John
Anonymous | Oct 6, 2011 | Reply
Hey John,
Thanks for sharing your views on this, and you bring forth another good point regarding the dollar.
It is truly funny how the talking heads you mentioned can swing from one extreme to another in terms of predictions. You know me though, I’m content to openly admit I don’t know what happens next but feel plenty prepared with some if/then scenarios. That’s the life of a trader, and it keeps guys like you and me flexible.
I appreciate you stopping by and chiming in John, go get ’em tomorrow!