Waving the white flag

From our 2/27/09 daily market commentary:

Stocks opened to the upside yesterday and gave us the start of a rally that some of us have been waiting for. By midmorning, things turned south after the new budget plan was revealed. Not only are we fighting an economic crisis, but the help that is needed, seems to be hurting the market as well. What can we do but wave the white flag?

The new administration is not a friend of the stock market and as investors in the TSP, we will have to figure out how to deal with it. Yesterday's budget may have put a dagger into the healthcare sector, one sector that was doing OK. There does not seem to be many places to hide anymore, except maybe for gold - but that is not an option in the TSP.

On Mad Money last night, Jim Cramer, who was a big supporter of Obama during the campaign, is now beside himself. Speaking as an investor he said, That Obama does not seem to realize that many Americans own stock, not just the rich.

As someone who operates a website geared toward making money in our retirement accounts where rising stock prices are basically the only way for us to make any money, I don't like what is happening. The game is changing, and the road to an economic and stock market recovery is getting more and more murky (can a road get murky?). I hope I am wrong. But I digress.

The S&P 500 tried to rally again, but failed. I did make a transfer to get out of stocks yesterday morning, thinking I was selling a big rally. Of course by the end of the day all of the gains were gone and instead I tacked the losses into my account.

The current consolidation is similar to what we have seen a few times over the last year. Some have broken upward, and there was one big breakdown in October.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I am cognizant of my own sentiment toward the market and I try to figure out if I am getting overly pessimistic, at exactly the wrong time. Once I wave the "I give up" flag, I realize that the market may be ready to rally. But I am worried that the market did have opportunities to rally, but it is not taking it because, everyday, something new is revealed that seems to be hurtful toward growth. If companies don't have the opportunity to grow, stocks will continue to decline.

The market is still in a dangerous situation. It seems as if it wanted to rally earlier in the week, but it just can't seem to hang onto gains. I am torn between thinking it could be a good time to buy - from a contrarian viewpoint - because I am so bearish (and I am part of the dumb money - but I know it), and staying defensive because there just doesn't seem to be anything to stimulate the market. If bank stocks can continue to rally, as they have been this week, that would be a good sign, but we have seen these rallies before and they have all turned south. We'll have to wait and see. If the financials don't continue to rally, the rest of the market will have a lot of trouble moving higher.

As for me, I am as perplexed as anyone, and my best course of action is probably to watch my premium services for clues.

Tom

 

[coolhand]

You've expressed my own feelings pretty well this morning Tom. I can't keep up with the seemingly non-stop diet of bad news. Much of which is expected in a bear market during a recession, but between the questionable way our administration is handling it, the defiant, privileged nature many high flying CEOs are publicly displaying, and the occasional uncovering of Wall Street fraud, I can no longer find a reason to embrace my typical contrarian market strategy. The Fed, Treasury, and Administration are shooting from the hip and making up the rules as they go along right now. To say there is no clarity in this market is a severe understatement. We need a lot more than soothing words and optimistic rhetoric can deliver. :notrust:

 

[CountryBoy]

I've pretty much come to the conclusion, unless something major occurs, is to sit in the G fund the rest of the year, but I didn't say never, but I've got cut bad trying to catch that falling knife the last 2 times.

I'm still going to buy individual stocks for our ROTHS, but be very selective and hope they can hang on. Otherwise, I might as well bury it in the yard and that plan is looking more attractive everyday.

CB

 

[Bullitt]

I'm running out of reasons here myself. The only thing, and I mean the only thing keeping me in this is the fact that the headlines have dictated which way the markets have headed every day for the past couple of months now. The fact that people can just pile on with bad news in short ETF's, while the crooks have no uptick rule and naked shorting has just exacerbated the problem. Yes the banks are insolvent but for God's sake, 92% of Americans still pay or have paid off their mortgage!!! The system is still alive and lending Mr. Politician, it's just that it's no longer lending to deadbeats and meanwhile people like me don't need loans because of a positive savings account!

In the 1920's (which I'm not afraid to say I really don't have much knowledge of beyond prohibition) people lined up in front of their bank to put the run on it. Nowadays, the run is made by dumping 5,000 shares of a stock with a single mouse click and it only takes a split second. Even money can be withdrawn from money market funds in a heartbeat. To make it worse, you've got people saying 'own gold, physical gold, the market is going to 600'! It doesn't take much to be a technical analyst these days but nobody wants to get burned again. Stocks for the long run is being greatly challenged here, but for that I blame the greed and gluttony of not the CEO's but the working class Americans. We all know- the guys who abuse sick leave, do minimal work, always complain...

Yeah, the drug dealer on the corner is an idiot, but do you blame him for the drug problem in America? Do we blame the lenders because Americans all feel they must keep up with the Joneses? I can go on and on here, but at the end of the day, nobody benefited from all the excesses and idea that trees grow to the sky. It goes way beyond the banks my friends.

The market is always right and once you let yourself believe you've got it figured out, boom. I do believe we're in a secular bear, but I don't believe the guys who've been using the headlines to make money the past couple months will be doing that forever. Just remember the panic buying in oil a few months ago.