Hope
That was the subject of today's sermon, and I am using it as inspiration for this edition. The rally we have seen over the last month has surely inspired hope in the investing public. Although it has not reached extremes, it is reaching dangerous levels again. The number of investment advisors who are bullish is in the mid 50% range. The short interest numbers show a similar situation, with numbers in the high range, but not at extremes.
Both the market indices and individual issues have reached overbought levels, with the Chinese internet names one of the exceptions. These issues should be avoided as their laggard status is showing up in some bearish formations, especially for one of the previous leaders, NetEase (NTES). This former high-flier has shown a nasty breakdown in the last few months in the midst of a strong market, a bad omen. It should be sold short above $70, using $75 as a stop. Another poor group is the housebuilders, which is showing mixed performance. Toll Brothers (TOL) has recovered only modestly from its autumnal fall. It should be shorted above $41.66, with a $46.11 stop. Meanwhile, the strength seems to be limited to certain issues such as Google (GOOG), Apple (APPL) , Hansen (HANS), Chicos (CHS), Merc (CME) and Express Scripts (ESRX). A diverse group, not to mention the Gold Miners, which has just broken out. While I remain suspect of this breakout, it must be respected, so if you own these it is best to hold them, at least waiting to sell these issues in 2006 can defer the tax bite a little. But the next point is where the the above mentioned hope must be tempered with a little savvy market knowledge.
While most market-watchers have been blithely enjoying the rally and/or commiserating while they watch their issues languish, the savvy market participants are aware of the seasonal patterns which are in full effect at this time. We have already seen the effect of the end of the bearish period which recently ended in October and are staring a very short term bullish period straight in the face. That period is the holiday and end-of-the-month time confluence which ends this year on December 7, so any selling should be targeted for that period. This is the best time to do any tax-loss selling, which virtually everyone must have this year. Hoping that the losers bounce back is a losing game, especially since the big portfolio managers are going to want to trim the losers from their portfolios in December, so the yearly reports don't show these laggards on the books. Maybe they will bounce back in January, but that is a subject for next month's report in late December, when it will be time to discuss the January effect. At that time, low-priced laggards can be picked up for a late December-early January "bounce". But before then, the institutions will be purging them from their portfolios, so it prudent for all of us little guys to be out of these issues by the close of business on Wednesday, December 7, 2005. Finally, with a Fed meeting scheduled shortly after this time and just before the holidays, it would be best to be out of the way of the market between the 8th and 22nd of the next month. Enjoy a few holiday parties and get the shopping done instead! Merry Christmas!
Both the market indices and individual issues have reached overbought levels, with the Chinese internet names one of the exceptions. These issues should be avoided as their laggard status is showing up in some bearish formations, especially for one of the previous leaders, NetEase (NTES). This former high-flier has shown a nasty breakdown in the last few months in the midst of a strong market, a bad omen. It should be sold short above $70, using $75 as a stop. Another poor group is the housebuilders, which is showing mixed performance. Toll Brothers (TOL) has recovered only modestly from its autumnal fall. It should be shorted above $41.66, with a $46.11 stop. Meanwhile, the strength seems to be limited to certain issues such as Google (GOOG), Apple (APPL) , Hansen (HANS), Chicos (CHS), Merc (CME) and Express Scripts (ESRX). A diverse group, not to mention the Gold Miners, which has just broken out. While I remain suspect of this breakout, it must be respected, so if you own these it is best to hold them, at least waiting to sell these issues in 2006 can defer the tax bite a little. But the next point is where the the above mentioned hope must be tempered with a little savvy market knowledge.
While most market-watchers have been blithely enjoying the rally and/or commiserating while they watch their issues languish, the savvy market participants are aware of the seasonal patterns which are in full effect at this time. We have already seen the effect of the end of the bearish period which recently ended in October and are staring a very short term bullish period straight in the face. That period is the holiday and end-of-the-month time confluence which ends this year on December 7, so any selling should be targeted for that period. This is the best time to do any tax-loss selling, which virtually everyone must have this year. Hoping that the losers bounce back is a losing game, especially since the big portfolio managers are going to want to trim the losers from their portfolios in December, so the yearly reports don't show these laggards on the books. Maybe they will bounce back in January, but that is a subject for next month's report in late December, when it will be time to discuss the January effect. At that time, low-priced laggards can be picked up for a late December-early January "bounce". But before then, the institutions will be purging them from their portfolios, so it prudent for all of us little guys to be out of these issues by the close of business on Wednesday, December 7, 2005. Finally, with a Fed meeting scheduled shortly after this time and just before the holidays, it would be best to be out of the way of the market between the 8th and 22nd of the next month. Enjoy a few holiday parties and get the shopping done instead! Merry Christmas!
posted by Matt Butler at 6:25 PM
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