Thursday, April 16, 2009

Short-term bearish, long-term not so bearish

These have been the most difficult stock market conditions for at least the past year.

The S&P 500 index has crossed the first of two key thresholds that usually forecasts the end of a bear market, so my long-term forecast is now "unconfirmed end of bear market." However, assuming that the market turns around soon, my long-term forecast will switch back to "bear market" when stock prices cross back.

Meanwhile, sentiment remains bullish, which is almost always bearish for stock prices on short-to-medium time frames. I admit that I did not expect such a strong rally in the face of overwhelming optimism, but one case of contrarian market-timing investing opposite to a large rally is not a reason to dump the method. If anything, it may cause other contrarian investors to give up, which would actually help to make the method more effective again. Time will tell.

Adding to my short-term bearish conviction is the formation of a rising wedge formation.

These almost always end with a violation of the lower trend line and a decline in prices, so I'm staying fully invested in GRZZX. Thanks to the wedge formation, I think the wait will finally end soon.

Wednesday, April 15, 2009

Something's gotta give

This post is about much more than the stock market. For many months now I've been reluctant to openly speculate on our future, but now I'm compelled to drop a few hints.

Most of us are familiar with the landscape by now:
  • Trillions of dollars of new public debt marketed as a cure for a nation with too much private debt.
  • Massive loans from foreign governments (treasury sales), followed by equally massive printing of new dollars, effectively reneging on part of our debt payments.
  • The rise of newly hostile nations like Venezuela along with a military resurgence of old bad guys like Russia, Iran, N. Korea, and even African pirates(!) - just at the time that our politicians are talking about cutting missile defense and reducing the military budget.
  • A widening divide between two irreconcilable political camps in our own country (conservative vs. liberal).
  • Record ammunition sales to private citizens.
  • Increasing government control of corporations and the economy.
I can't predict exactly when or what event will trigger the next wave of massive changes to our country, because I'm not an historian and I'm not wise enough to choose from numerous possible scenarios. However, I wouldn't be surprised if a fed-up China did something drastic with its two trillion dollars of U.S. Treasury bills. Nor would I be surprised if China, Iran and N. Korea took advantage of perceived weakness to move on Taiwan, Israel, and S. Korea, respectively. Finally, I'm not surprised that Texas is making noises about state sovereignty and the right to secede from an increasingly cowboy-hostile Washington D.C.

The bottom line is that the world is starting to ponder the possibility of a bankrupt yet power-hungry U.S. federal government. China doesn't want to get stuck with worthless T-bills; states would rather be free from both federal control and the federal debt; and enemy nations are licking their chops at the prospect of mothballed U.S. aircraft carriers and shelved missile shields. Even if all of these details are wrong, there's little doubt in my mind that the world is in store for even more painful upheaval. We can't trick hostile foreign governments into funding our gargantuan federal budget forever, nor do our own citizens have infinite patience for a fiscally irresponsible and meddlesome federal government.

Something's gotta give.

Monday, April 06, 2009

The suspense is killing me

The S&P 500 index is tiptoeing along just below a threshold that will make the long-term component of my timing model start to turn from bearish to neutral. Meanwhile, as has been the case before in 2009, my sentiment readings are about as optimistic as they can be, which is bearish in short/medium term. Since the March-April rally has been slowing down but not stopping or reversing, the market may remain in this frustrating limbo for some time to come.

I don't really care which direction the market ends up going. I simply want it to give clear signals either way before it makes a big move so that I can profit from it. Take note, though, that with a dividend yield of 3.5% and forward P/E ratio of 19 for the end of 2010, the S&P 500 index is still on the expensive side of the historical average, so stocks are probably not good long term investments right now, even if this is the beginning of a bull market rally.