I don't see why. The indexes have just now reached key support levels. If one has the guts to buy and also thinks its not about to fall thru support and enter a bear market, now would be the time to buy, not the past few days. Most of the "news" is just noise and its used to explain what the market does, not really the other way around.
Not really. What often happens is, when there is no fundamental data or institutional trading, most trades are from the technicians... its the techies who create the majority of the noise.
The reason I don't like Tech analysis, is that tech traders have a TERRIBLE track record. Techies that are 'brilliant' one year, can't beat a dart board the next year. A lot of the so-called evidence for technical analysis is data-snooping bias or selectively marketing certain tech funds and ignoring all their funds that do poorly.
HOWEVER, I do think that certain forms of short term analysis can work, and this involves being able to identify irrational human behavior influences on stock prices vs. legitamate influences on stocks. This is when you look at the impact of emotions, cognitive errors, irrational preferences, but this is VERY hard to do.
"Fundamentally bad" is a relative term. The data shows a lack of growth which should be there to really call it a recovery. The growth is not zero but very low.
Nonetheless, corporate earnings are mostly quite good and stock prices ultimately reflect the earnings and growth of the company. So this counterbalances all the doom and gloom about how much money people are spending. Honestly for me, I don't get it. People are supposed to save money and not just spend it all. It should be a sign of a healthy economy. Nonetheless people still spend money on certain things and those companies turn profits. The importabce of some of the data is overblown imo.
If you beleive that the recent data is NOT bad and is being overblown, you are STILL making an analysis based on fundamentals, not technicals. You are saying, the data is mediocre, but it WONT significantly bring down a company's earnings because of X,Y, and Z. Hence, if traders suddenly sell because they are missreading the data, they are being irrational so you will buy. That is NOT technical analysis, that is you analyzing fundamentals to a different conclusion than the market.
HOWEVER, if you saw data that you DID beleive pointed to a double dip, and then you saw traders selling off, you would NOT buy, because you would beleive that the data would ultimately affect prices, and the sellers are generally being rational.
Even though I don't agree with your assesment, your methodolgy is sound.
About a dead cat bounce was it also one in march and in late june? How many dead cat bounces will there be then? Look I can see that a head and shoulders reversal MAY have formed but it hasn't happened until it falls through. Perhaps we merely entered a trading range rather than a full blown bear market. I reserve judgement at this point but I don't really get all the doom and gloom.
I am NOT a technical analyst, which is why I said there MAY be a dead cat bounce, prices may stabalize, or prices may fall off a cliff, I just don't know what the short term will bring, and never will try to predict short term trends. But what I said is that IF there IS an upward movement in the short term, it will likely be from the technicians looking at their charts, and saying, hey, the price has past a support level, so now we should buy... and since I beleive there will continue to be bad news, this spike will ultimately (I dont know when) be corrected.
A dead cat bouncing is a rare occurance, simply because downward trends are rare because economic contractions are rare. The economy expands far more often than it contracts.... and events like the great depression or great recession are very rare, once in a lifetime events.
That being said, things are VERY different now than they were a few months ago. (Will go into that in next response)
What makes it a mirage? You really think the appropriate response to subprime collapse was the dow losing 600 points? There are companies who never stopped profiting in the billions during that period but saw stock price drop 50% or more. To me the giant collapse was more of a mirage than the recovery of the markets. Its not like we even reached the highs of the pre2008 period!
I assume you meant 6000 points, Anyhoo, I really dissagree with what you said here.
The subprime collapse was FAR more significant than any other crisis in our lives. I can't say for sure what the appropriate level of the Dow should be at this point in time, but I will explain why it skyrocketed back up to 13,000 and the last couple years has been a mirage.
The economy has been greatly distorted to appear as though we were entering a recovery stage in 2010 so nearly everyone bought into this, especially since they could say, well, its following the patterns of previous recoveries, just a bit slower.
Huge amounts of government spending were used to increase demand, and although it was innefficient, it still affected overal demand, and since companies had already lowered their payroll costs so dramatically, these sudden increases in demand looked great to their bottom line... and like magic.... companies looked profitable again.. and the stock market skyrocketed. Also, the historic printing of money greatly affected prices, especially since it has pulled down the dollar to new lows compared to currencies like the Franc (Now being used as a benchmark).
More significantly, our government made the real estate market look like it had recovered with their tax incentives. This was the biggest trick up their sleeve, since most economists acknowledge that a recovery is impossible withoout first having stabillity in the market that caused the bubble in the first place. And in 2010, most economists said it all worked, and we were in the middle of a slow but steady recovery. Even more amazing... most economists said the real estate collapse was over.... (I am still amazed by this)
However, ask them again now, and they will give you a different answer. Some have even suggested we are already in a double dip. All these programs/incentives/stimulants are dissapearing, and we are finding out that you can't fool the economy and things are simply returning to where they should be... even worse in some instances. This is why it is a mirage and this is why the recent price drops ARE warrented, they are not just noise. And this is also why the news will continue to be unexpectedly 'dissapointing' like they have been over the last few months.
Its not JUST about the fact that the government sugar high is over. The most important factor is that the Real estate bubble hasnt finished bursting. Even though its way down to 2002 levels, it will probably continue to dive below 2000 levels. Remember, even in 2000, Real Estate values were overpriced. Real Estate prices in the United States from 1995 to 2007 soared WAY beyond inflation. Before 95, prices had largely followed inflation. The bubble was HUGE, about 50 times larger than the dot com bubble, and used far more debt, and affected most of the west, not just the U.S. The only thing close for comparison is the Japanese real estate boom, which was still not as large but prices still havent recovered 15 years after the fall.
And none of this is taking into account when we have a credit rating reduction. This will be devastating.... honestly, beyond comprehension. It won't be for a while, but mark my words, tax revenue will continue to be below expectations, and when the GOP attempts to cut spending in 2012, especially entitelments, it will cause absolute pandamonium from the public, and the 'cuts' won't end up being cuts afterall.
