It is said that you don't make money from the stories on the front page but from the stories that move from page 10 to the front page.
What's on the front page?
If this is the weekend then it must be time for another rescue...Bear Stearns, Fannie, Freddie, Merrill, Lehman, AIG, WaMu, short sale prohibitions and now the Morgan Stanley, Goldman Sachs reorganizations as well as the $700b bailout.
The
Japanification of America continues and the market melted up this week in response to short-term government “fixes”. Notwithstanding the
outrages that others have expressed over the government’s intervention, China also signaled that
its line of credit has limits.
Page 10 items that I am focused on
While all the headlines are fascinating, it is equally important not to allow them to distract you. The equity market was oversold and certainly due for a relief rally. The VIX Index spiked to 41.97 on Wednesday, which is sufficiently high for a short-term bottom. The most important "tell" of a short-term bottom has been the telephone calls and emails that I received in the past week from people that I hadn't heard from in some time - they all wanted to hear what I thought of the market.
While the panic last week likely marked a the start of a short-term rally, I don’t believe that the bottom has been put into place for this Bear Market for the following reasons:
- Technical: the leadership in this rally is all wrong. Moreover, sentiment was not sufficiently bearish enough for this to be anything but a short-term relief rally.
- Monetary: Money supply growth remains anemic.
- Fiscal: The market hasn't discounted the likely fiscal drag on the economy that is coming next year.
Wrong leadership in this rally
I have pointed out before that true rising from the ashes Phoenix bottoms tend to be led by large cap stocks. In the two days of this rally, the small cap Russell 2000 (+11.2%) beat the large cap S&P 500(+8.4%).
Sentiment isn't sufficiently bearish
The AAII sentiment survey of individual investors shows that while investor sentiment was bearish (contrarian bullish) going into this rally. However, readings were nowhere close to bearish extremes.
