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The conventional wisdom seems to be that this is a “hopium”-fueled rally inspired by Dr. Ben Bernanke, a native of Dillon, South Carolina. The capital markets are said to be propped up on the hope of continued monetary easing, amongst a whole host of other accommodative factors, such as the fact that this is an election year. That same conventional wisdom also suggests that this rally will “end in tears.” Seeing as that has essentially been the background music to the cyclical bull that began in March 2009, I am skeptical of logic that goes something along the lines of: “This is all very fun and we are bullish, so enjoy the ride before we all go to hell in a handbasket.”
As I wrote last October in this post:
…if you are a stock trader then you have to accept this for what it is–The man is waging war on a battlefield of a fight that took place 80 years ago, and we are all being dragged out, forced to fight in our uniforms and bayonets against an enemy that may or may not be a phantasm. Monetary policy is, and will remain, easy for quite some time. Bernanke’s latest gambit of “Operation Twist” coincided with the October 4th stock market bottom, with those lows holding firmly since then. Plenty of people saw Bernanke as playing hardball, but the market did not seem to mind.
When you take all of this into account, if you are a bear pointing to the weak fundamentals of the U.S. and global economies to support your case of lower stock prices, you are doing yourself a disservice by discounting Bernanke’s unwavering conviction to fight the demons of the 1930’s. Whether the two periods in time are truly similar is academic at this point, since the man with the power has given his answer to that question time and time again. The only issue for me is just how much “power” over the markets Bernanke actually has. With this latest twist in the saga, though, it is tough not to say that he is still calling many of the shots.
We are seeing a mild broad market consolidation this morning which, after yesterday’s huge rally, is constructive. Some of the high beta China names, such as DANG RENN SINA, are moving nicely. In addition, the rare earth plays like AVL MCP REE are attracting hot money. Other than that, this looks to be a range-bound trading session where being too active is probably a mistake.
Chess:
Would like to hear your thoughts about what many have been saying about the low trading volume. In fact I would like to hear your thought of how much volume plays in to your thinking when looking at a stock chart’s breakout or breakdown. I seem to have many stocks that are breaking out on low volume. Should I be more concerned than otherwise? Thanks for your comments. Your commentary is the one I go to over any other internet blog.
Thanks, SAC.
Because we are still in a secular bear market since the year 2000, you can expect the cyclical bull runs (3-4 years) to be on low volume. It might be several more years before we see the beginning of a bonafide secular bull market. History says it might be anywhere from 2014-2020. This time could be different, but the low volume on the indices should be expected on rallies for now. I would look at individual charts for volume as a better gauge.
Hey Chess, with coal getting kicked in the nuts do you have any interest in the Uranium plays? CCJ or any of the smaller players UEC, URZ,UURE, etc.?
They still have a lot of work to do. URZ has potential.