Wednesday, February 25, 2009

Nowhere to Run, Nowhere to Hide

The markets continue to be uninspiring at best. Any hope that the President's speech to Congress last night would provide an uplift to any market was dashed. Not only did stocks sell off, they did so in the worst way, losing support both in the AM and into the close. A familiar pattern continues, with rotation occurring while the overall market trends lower. For example, HMO stocks were weak all day and weakened into the close. Gold and silver moved lower today after being higher at mid-day. Unlike the explosive move that Treasuries had last fall, gold is getting close to the anniversary of its all-time high. GLD has had about a zero total return over the past 12 months and thus has only been a relative-strength story. SLV is a worse performer; as silver is not really a monetary metal, its strength the past few months leads me to be skeptical not only of its move but that of gold, as well.

Within stocks, the McDonald's "indicator" is flashing red. The stock, the second-best performer among the Dow 30 last year, has a miserable short- and intermediate-term chart. An up-move to 57-58 will be met with supply from chartists. WMT has a down-chart in a more advanced state of breakdown. And these two companies are the best in breed amongst the Dow given the poor economies worldwide. Safe-haven stocks such as pharma companies look terrible, including stalwarts such as J&J. Strength today in P&G and AT&T follows a poor recent performance from them. More of the same bear market action, boringly and depressingly. Where is there an end of it, the silent wailing?

Treasuries have a poor technical configuration, but at least this is a seasonally weak time of year for them.

Meanwhile, the ranks of bears is shrinking as the markets deteriorate. Robert Prechter has removed his bear shirt and called for a sharp up-move in stocks. After the Obama victory, a number of other prominent bears such as Bill Fleckenstein turned somewhat bullish. The more the bears drop out while markets deteriorate, the more I want to think that something is wrong that these experienced pros are missing, and I don't want to be exposed to the downside action until I find out what they don't know. We all know that a stock market that has dropped so far, so fast can shoot upward at any time. We just don't know why it doesn't do so.

Technically and fundamentally, matters are a mess. The Administration and the Fed present somewhat coordinated strategies that present no coherent front and appear to leave Citi and its brethren zombiefied. Gold and silver appear to have been sold to the public a bit aggressively. Treasuries are beginning to have credit risk priced in and certainly have no shortage of supply. As for stocks: if the Dow 30 or the S&P 500 were a single stock, and you evaluated it on the basis of earnings, earnings growth, stock chart, and underlying hard assets (ignoring intangibles and goodwill), you would conclude that at best it was a trading vehicle, not a buy-and-hold type of stock.

The only one of the above that can be ascribed to the new President is the supply of Treasuries. It just may be that it is, from the standpoint of markets, 1931 or early 1974, and what is going to happenwhat happened will/would have happened more or less no matter who occupies/occupied the Presidency.

When money leaves all three major asset classes: common stocks, precious metals, and Treasuries on the same day, as it did today, that suggests it went to cash.

Consider doing the same.

Copyright (C) Long Lake LLC 2009

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