Wednesday, February 11, 2009

Anticipating Failure

Here is today's from page of the New York Times. What caught my eye was the sub-heading beneath the headline: "Wall Street Reacts with a 4.6% Plunge".

The use of the word "plunge" to describe yesterday's market action is indicative of the media's and the public's attitude towards fiscal stimulus by congress and monetary/financial action by the Fed and the United States Treasury. I think there is plenty of skepticism about the ultimate effectiveness of government rescue operations. In fact, among the blogs and commentators I read each day, I'd say the prevailing attitude is one of ridicule and cynicism towards these efforts. If I didn't know better, I'd even think that there are many people who actually hope that rescue efforts will fail and that the economy will soon fall off of another cliff.

If I am reading public attitude correctly I think it is consistent with the view that the stock market is very sold out already. The selling that seems to follow every rescue announcement is having less and less effect on the market averages. Indeed, the S&P is now trading just a little below the intraday low it reached on October 10, more than 4 months ago. In the meantime a torrent of bad and discouraging news has not succeeded in driving the market lower and keeping it there.

All in all I think the next big surprise market-wise is going to be a big rally, not a big drop.

13 comments:

Anonymous said...

"So I think it is likely that the market rally into the 837-40 zone before it takes out yesterday's low. If I am wrong here it will probably be because the market goes straight down from here and this is another reason why I want to maintain my short position."

Make up your mind.

Carl Futia said...

What a jerk. Make up your own mind, you turkey.

Di said...

Carl, i am with you on that. It doesn't seem logically to continue downtrend without a retest of 900. Also, it suspiciously doesn't want to break the 820 for so long. A good rally should come as a surprise

Anonymous said...

well you have been short today--its not clear though..But one would expect a pop following the stimulus bill...none of these pops are holding because its all traders...the long term money is waiting..but again some stocks seem to be outperforming...MA,GS etc..but then again RIMM screwed up

BH_Trade said...

Good point. I personally can't find any bloggers who view upside surprises as being sustainable. The prevailing view seems to be that market needs one more large washout to kill any remaining bullish sentiment, set panic-like conditions, and end this bear market. The market rarely accommodates popular view and I doubt it will this time.

Anonymous said...

I know investors who didn't get out when the market plunged in October/November and are just looking for an opportunity to get back some of their money before they sell out. If they sense that a rally to 900-1000 isn't going to materialize, they may just capitulate. I do not how many are out there like that, but I fear it may be more than one thinks because of the speed of the plunge in October/November.

Anonymous said...

It appears that we are all treating the market like a casino. Maybe, because technical analysis is being used by more and more by traders.

However, it is eventually the earning projections that determine the real value of stocks. There does not seem to much to rejoice about in that area, for at least a few more years, because of the majority of the US population now consists of aging boomers.

Anonymous said...

Sorry Carl, that was rude of me.

I agree with your earlier take, the market is going lower, regardless of headlines comment.

Anonymous said...

I usually the market make up my mind and try to keep close stops.

Doc said...

Carl,

I believe what most are failing to grasp at this juncture is the significant decrease in risk in the market. I believe you stated this very well with the example of reading yesterday's newspaper and expecting the same to occur today (that just about covers herd mentality). Excellent insight on the NY Times front page.

Doc

mkk said...

Thanks for vocalizing what I've been thinking the past few days - the gloom and doom is so thick, you wonder why more people aren't slitting their wrists! Many of these pundits make increasingly dire predictions just so that they can grab the headlines for a news cycle.

Anonymous said...

Hi Carl - I share your sentiments about the next big move. I subscribe to Laszlo Birinyi's newsletter primarily because he's a great market historian and pretty good bottom caller. He sent a report the week after thanksgiving calling the bottom on 11/21 at 753. Much of his conclusion was based upon the market sentiment and he had lots of analysis, headlines, and TA guru comments about falling off the cliff at the bottom of the last half-dozen bear markets. But he also stated that he didn't know what the shape of the recovery will look like and reiterated that in his most recent missive. Thanks for your blog. It's very educational. -- Jeff

Anonymous said...

"among the blogs and commentators I read each day"

can you say which blogs and commentators you check