Re: Birchtree's account talk
I could use a full 250 point gain today to make me even so far on the week. Steady, I'll be at your backdoor ranking before the end of the month - watch for me. There are many lily padders that will sink as time progresses - it's going to be a fun summer.
How about 400 or so up to 1300.....? Yeah - I thought you would like that!
Thought you would enjoy Steve's comments..... We shall see.
WELCOME TO TRUE CONTRARIAN! I will attempt to create an entertaining, readable, and hopefully refreshing viewpoint a few times each month. Each issue will feature my intermediate-term financial outlook, my long-term financial outlook, and a personal reminiscence.
If everyone tells you it's going to be a beautiful day as long as it doesn't rain, then you'd better grab your umbrella and pack a raincoat. --Steven Jon Kaplan
TOO MANY NERVOUS BULLS ENSURE AN EQUITY PLUNGE JUST AHEAD (June 24, 2009): If you've been paying attention to the financial media in recent weeks, then I'm certain that you've noticed a sharply increasing number of analysts who are making remarks such as this: "The S&P 500 remains bullish as long as it remains above 875". Some analysts substitute similar support levels such as 860, 870, or 880 instead of 875, but their outlook is otherwise identical.
This line of reasoning has progressed to the point where it is a nearly unanimous consensus. Therefore, what must inevitably happen is that one fine day in late June or early July of 2009, the general equity market will break below the topmost of these popularly followed support levels. This will trigger sell stops from all of those investors who have decided that they will reduce or eliminate their equity exposure once such a target is broken to the downside. The resulting pullback will cause the next support level to be hit, thereby inducing more selling, and so on, until everyone with this viewpoint has turned bearish. This will probably cause the S&P 500 to complete a short-term bottom near 837. As a result of this retreat, there will likely be some fresh short selling by those who believe this event has ushered in a key downside breakout.
Since so many are positioned to unload rapidly when their pet support level is violated, the market will likely flush out all of these nervous bulls within just one or two trading days. Afterward, there will likely be a period of several trading days of above-average volatility in both directions, as investors become confused as to what will happen next. The following headline will become commonplace: "Will we retest the March lows? Analysts are divided in their opinions."
Following this period of indecision, some tentative buying will emerge. Hedge funds and pension funds worldwide are currently severely underinvested in equities as compared with their target allocations. Therefore, since hedge funds love to buy into any rebound which follows a sharp pullback, these funds will all be rushing back into the market at the same time. Those who sold short following the alleged downside breakout will simultaneously hurry to cover their short positions. This buying spree will be as intense and as brief as the previous rapid pullback had been.
Within a week or so thereafter, the S&P will likely regain the 900 level en route to the most powerful phase of its entire 2009 rally which began in early March. The quick bull market will likely end this autumn with the stock market returning to its levels of early September 2008. That could result in the S&P reaching 1300.
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