Moffs Market Mood Weekly Note Tuesday 22 September 2009

MARKET COMMENTS

Bearish Divergence Emerging in Asia – 1/9/09

Below is an extract from today’s The Daily Reckoning Australia, free subscriptions are found at http://www.dailyreckoning.com.au/. It gives a good overview of where I think where at in this intriguing market. I have nothing else to add this week; the markets look ready for a breather & September is a notoriously BAD month…

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Market Mood: 4 /10 – Concerned

“From Dan Denning in St. Kilda (for The daily Reckoning):

Mini Correction Not Enough – 26/8/09

Mini Correction Not Enough – 26/8/09

After beginning to aggressively call for a retracement/correction early last week, on Friday the All Ords finally showed signs of cracking; falling to our first identified support zone @ 4250. Top to bottom this was a fall of 5.1%.

I don’t think we can hang our hats up and with confidence & say that the inevitable correction is over. The primary up swing since March has lasted 174 days to date and has seen the All Ords rally 44.8%. A typical correction should shed 20% off the previous primary move. Last weeks late retracement fails to meet this criterion. In summary; I’m going with the flow, without conviction. Dancing closer & closer to the exit.

This week the reporting season reaches its climax (finally). It has all unfolded in a very orderly fashion; “most management outlook guidance has been cautiously optimistic, and at worst outlook is expected to be “challenging”. These results support the ‘sustained recovery theme’ and bode well for the longer-term market outlook” – nothing new here. There have been comments out of the press today suggesting companies have been using the GFC as an excuse to hide underlying fundamental problems… doesn’t surprise me.

Too Far, Too Fast; Correction Underway – 17/8/09

Since the intraday low at 3710 on 8 July, the All Ords rallied over 20% during the following five weeks. That’s a return of nearly twice the long-term annual average stockmarket return in less than six weeks… markets are fascinating beasts.

Over the last few days you could feel the momentum turning, the bulls have quietened down and moved onto the back foot, while pessimistic views (pleasantly humbled over the last 5 months) are beginning to appear again (from many sources: news wires, MINC’s morning meeting, market commentators, and our illustrious economic leaders). There is now a general consensus out there that the market has over-shot, rallying to far & fast ahead of the real economy.

Market Finds Resistance around 4330 – 12/8/09

In the last 8 days the market has hit a wall, but it certainly won’t sit down, oscillating between 4280 & 4330; the latter being a pretty clear resistance level on the All Ords.

I have nothing of any real significance to add on last week. The markets remain heavily overbought, with more bearish divergences appearing every day in both domestic and overseas markets. Adding cash positions by selling overbought stocks & taking trading profits remains a prudent tact. Remain focused on ‘special situation’ trade ideas.

Short & Caught (thankfully not) – 4/8/09

I don’t think I’m alone when I say this market has caught me by surprise. In fact I think it has caught a lot of people completely off-guard, and a few have been caught short. The acronym quoted by Southern Cross’ Charlie Aitken – FOMO (Fear Of Missing Out) is certainly the dominant emotion right now, as investors are rushing to get on the gravy train…. a funny thing the fear-greed cycle…. considering investors were jumping all over each other to find the exit only 6-9 months ago. Now we’re 40% higher and all anyone wants to do is buy, Buy, BUY!!! Reality Check!!!

Even the big-boys are getting FOMO fever (it’s spreading faster than Swine), with Citigroup and Goldmans in the last week upgrading basically all the ‘big 4’ banks, most to a “BUY” recco. I find it fascinating the market still hangs on their every word, apparently nobody remembers that these are the same analysts/firms that were recommending only a “HOLD” or a full fledged “SELL” 30-40% lower…

“Bull Run” Continues…. – 28/7/09

I was certainly a little premature (not necessarily incorrect) last Tuesday when I started alluded to a broader market pullback…. since, the All Ords has rallied another 3%, with some very impressive gains seen among the cyclicals and small caps. The current rally is now 20 days old and has seen our market rise 11%; annualised you’re looking at a completely unrealistic 180%.

The S&P500 (our global market proxy) has a RSI (relative strength index) of 94.6, remember; a reading above 70 is considered ‘overbought’, and this index is maxed out at 100. A reading this high is an exceptionally uncommon occurrence; since 1980 the S&P500’s RSI has been above 94 six times; 1 time the market continued to rally (1987 pre crash), 1 time the market drifted sideways (2004), 2 times we got a minor retracement (1991 & 1992) and 2 times their was a large correction (1990 & 2001). What does this all mean… I’m not really sure… food for thought.