T Nation

Playing the Suckers' Rally

The market collapse is just beginning but we’re near a point (35 or 40& down) where recession rallies begin. There could be a rally to Dow 11500 or so, before the collapse down to (my guess) 5000. Time to jump in, for a short time greed-fest?

Shit, HH, we were due for a suckers rally a when the S&P was at 1100 and that’s when it broke loose. I’ve been buying it. I bought today, I bought yesterday, I might have bought the day before. It’s becoming a blur to me now.

I thought a suckers rally could take us to 1200. I’ve lowered my sights to 1100 and if I’m that lucky I will still be taking losses in some positions. As someone pointed out in another thread (DB297?) this is a really tough market.

[quote]on edge wrote:
Shit, HH, we were due for a suckers rally a when the S&P was at 1100 and that’s when it broke loose. I’ve been buying it. I bought today, I bought yesterday, I might have bought the day before. It’s becoming a blur to me now.

I thought a suckers rally could take us to 1200. I’ve lowered my sights to 1100 and if I’m that lucky I will still be taking losses in some positions. As someone pointed out in another thread (DB297?) this is a really tough market.

[/quote]

Fact is. its still too high. The PE has to come down to at least 12 or so for a real solid historical foundation. That’d be at Dow 6000 or so. But…I am looking for a small rally of 2000 or so, sine the market is so oversold. Gamble woth names like GM and GE, or take real fliars with techs.

PE is now 11. Short-term buy:

http://www.dogsofthedow.com/dogs2008.htm

The sucker’s rally was weeks ago after the first big monday drop.

As DB and I keep saying, you have to watch the credit markets for a tell. So far, LIBOR has tightened and TED Spread has only widened. Not good at all.

I do think though, that we are very, very close to a bottom.

The key to this will be the Lehman debt auction. If it goes well IMO it will be a huge boost to the confidence of the financial institutions, if it goes bad, well, unless the govt. shows up with wads of cash we will likely see GS, MS and AIG become insolvent.

That would be the trigger for a capitulation type event.

So far the Lehman debt is going for about 9 cents to the dollar which is worse than was hoped but it’s not over.

[quote]bdog527 wrote:

The key to this will be the Lehman debt auction. If it goes well IMO it will be a huge boost to the confidence of the financial institutions, if it goes bad, well, unless the govt. shows up with wads of cash we will likely see GS, MS and AIG become insolvent.

That would be the trigger for a capitulation type event.

[/quote]

You may be right that it would lead to a capitulation type event and we may very well have more than one capitulation before this is all over, but we are already in a capitulation event.

This graph shows the capitulation very clearly;
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=spx&sid=0&o_symb=spx&freq=2&time=20

on edge-

If that were a one, or two day chart, I would be inclined to agree with you. But that is a weekly chart and what that chart show me, in my humble opinion, is forced liquidation of equities due to deleveraging from tight credit over a period of weeks.

While this recent decline has been gut wrenching, we haven’t had one day where the NYSE circuit breakers were tripped and the market was closed. We haven’t had one 10% plus down day.

We haven’t had one day where dips were not bought and the declines not orderly. I haven’t seen true panic yet and I hope we don’t but I can tell you this it would’ve been far better for the market had the declines over the past two weeks happened over a period of one or two days instead. We need a quick and painful clean out to shake the last buyers from the trees.

Just my opinion of course. Good luck to you.

[quote]bdog527 wrote:
on edge-

If that were a one, or two day chart, I would be inclined to agree with you. But that is a weekly chart and what that chart show me, in my humble opinion, is forced liquidation of equities due to deleveraging from tight credit over a period of weeks.

While this recent decline has been gut wrenching, we haven’t had one day where the NYSE circuit breakers were tripped and the market was closed. We haven’t had one 10% plus down day.

We haven’t had one day where dips were not bought and the declines not orderly. I haven’t seen true panic yet and I hope we don’t but I can tell you this it would’ve been far better for the market had the declines over the past two weeks happened over a period of one or two days instead. We need a quick and painful clean out to shake the last buyers from the trees.

Just my opinion of course. Good luck to you.

[/quote]

Very well said. However, that kind of selling is what I’d look for AFTER the minor rally that should commence soon, perhaps today. Until people get it into their heads that governments simply cannot stop this collapse, I don’t think we’ll have that sort of outright fleeing from the market.

We should get a ‘hopeful’ rally, followed by realization that no G8 actions or other crap like that is worth a tinker’s damn, followed by the sheer fleeing from investments. Fun to play with, if you have lots (and lots) of T bills and Swiss Francs…