A Stock Rally Could Erupt At Any Time

After the nasty Bear raid mauled investment portfolios during the final months of last year, the last thing that traders expected and wanted was more pain to start the New Year. But, it seems the grizzly was just warming up in 2008 as 2009 has turned into a freak show with January being the worst on record and now February faring no better. Six down months in a row; will it be seven?

March has often marked a cyclical turning point for equity prices. Last year, the Bear Stearns debacle culminated in March, and in 2003, the month of March marked a successful double-bottom in equities, ending the 2000-2003 bear market. Given the presently oversold condition of many technical oscillators, the extremely negative market sentiment, and large amount cash building in low return money market funds, a rally could erupt at any time. The big question is at what level will the equity market stage a reversal?

The self-proclaimed gurus come up with all sorts of price projections. We instead simply observe market action, with no preconceived notions, allowing us to get in tune with the market’s natural rhythm. A sharp plunge and late-day high-volume reversal pattern obviously would give us a reference point to establish longs, leaving easily identifiable areas to place stops, minimizing risk to client portfolios. That would be a perfect scenario that both limits risk and allows winners to run.

On Friday, we whittled down longs, building cash that will allow us to establish long positions if the market does crater, or await consolidations and subsequent breakouts from higher levels before adding to positions. We remain overweight gold and oil, short US treasuries, patiently waiting for better risk-reward set-ups.

If you’re bored reading this; we’re bored writing about it. Sometime soon, however, this four month long contracting triangle pattern will end, and prices start to clearly trend in one direction for many months.

Have a great weekend. I will try to finish most of the (abbreviated) Week In Review today so that I can get an early start at PDAC on Sunday. As usual, I expect an exhausting, interesting, informative week. The weather has turned extremely cold here today, about zero Fahrenheit (-16 or -17 C), which is expected to continue. This is a bit tough to handle as I have been in Bahamas the past almost six months. Two weeks ago, during a cold snap down to about 53 F, I was “frozen,” covered in two sweaters plus a rain-proof golf jacket and two towels wrapped around my head like a boxer. I’m a beach person, not a skier.

Still, the cold is not as challenging as the market. Now, that’s what I call rough - haven’t seen anything like it since 1973-74.

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Comment by yixter

2009-03-01 20:06:22

if there’s no rally in march I bet you will come out and predict it will happen in April

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