7.24.09

7.24.09

          The market has been on fire for the last two weeks. When you search for good solid reasons for this to be happening, you come up empty –handed. The fact remains that this market is being controlled by the “Traders” not by investors. Yes, the market was up big, but look at the volume, it was down. This indicates that the large institutions are not in the game. If we had heavy volume it would have triggered a buy signal.  But although Wall Street expected a severe down day on Friday as a result, the market hardly blinked. Dave Rovelli, director of trading at Canaccod Adams said, “I thought we’d be down huge today, but no one seemed to care. They just want to buy stocks and chase performance.”Or even chase non-performance. Capital One Financial plunged in the early going Friday after reporting it had suffered an unexpected $276 million loss in the 2^nd quarter. The old investing adage that unexpected quarterly losses are usually followed by more, and the stock should be avoided, was nowhere to be seen. After its initial decline, the dip was apparently seen as a buying opportunity and the stock was soon up a big 8% on the day. 

           Just two weeks ago, the White House, Federal Reserve, and Treasury Department were warning that the economy still faces sizable problems that will keep the bottom still some way off, and that after it does bottom there will be only a very slow recovery.

          Warren Buffett was warning “the economy will be in shambles for the rest of this year and probably well beyond”. Referring to talk of green shoots, he noted that his Berkshire Hathaway holding company owns 70 diversified businesses and he watches the figures on them, sometimes daily, “and so far I don’t see any hopeful signs.” It was also his outspoken view that the economy was going to need another large stimulus plan from Washington to halt its decline.

          Warren Buffett said Friday morning that investors should be bullish on stocks “if they have a ten-year outlook!” Hmm. Most investors can’t hold onto losses for more than a month or two, waiting for a turn in the market.

          We are still 100% in CASH and waiting for a “real buy signal”.

Till next time

The MTA Staff