There have been two major stand-outs in the market during this up cycle that began in September. The first is anything related to commodities. With the FED goosing money into inflationary assets, Jim Rogers ties his bow-tie just a little tighter. We know this. In fact, the price of commodities are so extended in relation to actual supply and demand, that I wonder who will be able to afford them other than the newly minted Chinese Billionaires.
The other sector that has been the best performer is the broad area of technology. Now, at year-end, you are being told that technology is “your savior”. It is where the gains are, where the beta resides. And you are tempted to buy it, hand over first.
This is the exact flipside to what you were told during the warm summer months. Back then, anything outside of the AAPL sphere of influence was a trap and should be sold even though most of the stocks in question had already fallen 30-50% from their yearly highs. Good advise, thanks for that! Most stocks tested their July 2009 breakout where we did some mondo-buying. Thanks again…
Since this rally began on September 1st, the MSH is up 28%. That’s right, in just one quarter, this key technology index is up by almost one-third. Has there been some fundamental change in the business since the summer? No. If fact, there has yet be even one reporting quarter since the rally began! Are these gains simply a snapback from some extreme bearishness? Has there been some new technology bringing new revenue and earnings? Nope. Just our PM friends looking for some Beta.
It is the end of the year and Dr. Fly has correctly warned us that there is NOTHING that can stop the Santa rally this year and he has been dead on right. With the FED doing 2 POMO’s a day, QEII in full swing, the ECB saving countries left and right and China encouraging 9% growth by hook or by crook, money managers don’t really need a reason to sell or to even take profits. The market is lulling everyone into believing the trend can continue forever.
Remember, individual investors are out of stocks and into bonds. The markets are controlled by the FED first and foremost, but are also dominated by computerized professionals who are happy to say goodbye to the odd lotter. They are why most indicators run to historic extremes. And most of those indicators are there right now. The cycle is stretched and that coincides with the end of the year fun and everyone believing that green shoots are back.
It is amazing how right the Maestro was. A stock market rally will do more for confidence than any stimulus, and now, after a huge 25-30% rally in the last quarter, everyone has been on the same page for weeks. There is a time when the consensus is right. But it doesn’t usually last very long.
For those who followed me into the abyss months ago, continue to raises stops, liquidate positions and watch the lemmings as they pump and primp themselves before they go careening off the cliff. Don’t jump into an overextended cycle because it is suicide. Keep your powder dry and get ready for the next opportunity. Don’t worry, it will be here before you know it…
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