In recent days the stock market has rallied, ignoring all the warnings by CNBC and the Wall Street Gang.
Not a bad strategy; put out warnings about what a bad month September is for the markets, buy some depressed sectors, get investors to short, rally the market, put out good news about falling energy prices, get shorts to cover and go long, then take profits. How convenient.
As I said a few days ago I said;
In the first few days of September, CNBC and Bloomberg were warning us that this is the worst month for the stock market. Now that the cats out of the bag, and millions of investors have positioned themselves accordingly, I think its time to prepare ourselves for a year-end rally. This rally could be pretty impressive, but I don't want to get caught up in owning a portfolio of 25-30 stocks to capture the possible upside.
After the markets recent rise, we may still have a big year-end rally, but I don't think the recent rally is its beginning. At this juncture, will the market continue to go higher, or will we finally get the fall sell-off after option expiration on Friday?
Since the market has surprised on the upside in recent days, and the CNBC cheerleaders are routing for more, my guess is disappointment is only a few days away.
If everything is so bullish, we certainly are not getting any confirmation of this from corporate insiders. I have not seen any significant buying in any of the cyclicals that have led the markets higher in recent days. In fact, insiders are still selling shares that are not locked up.
I have been adding to my hedge positions in the ProShares UltraShort funds in anticipation of a September surprise on the downside.
Target downside:
SPX: 1290-1270
Dow: 11,100-10,700
Nasdaq: 2100-2025
UltraShort Funds:
UltraShort QQQ ProShares(QID)-Double the inverse of the NASDAQ-100 Index
UltraShort S&P500 ProShares(SDS)-Double the inverse of the S&P 500 Index
UltraShort MidCap400 ProShares(MZZ)-Double the inverse of the S&P MidCap 400 Index
UltraShort Dow30 ProShares(DXD)-Double the inverse of the Dow Jones Industrial Average
Its become clear that the recent drop (Magic) in energy and commodity prices will reflect well on the inflation front, but as I have said many times before, I anticipated this would happen as we approached the mid-term elections. I hate to bring politics into investing, but unfortunately they are running hand and hand now days.
President Bush got a bump up in his poll numbers as energy prices began to pullback. It makes one wonder about the timing of all these events (Oil prices falling ahead of the election like they did in 2004, Chevronç—´ oil find in the Gulf, BP fixing its pipeline, etc). If this is by design, one could speculate that the oil cartel is just protecting their interests and betting that consumers have short memories.
For investors and consumers, we don't have many choices since neither political party looks out for our mainstream interests anymore. We are better off with no political parties, and if we have to have them anyway, we need to make sure neither one has majority influence. The stock market loves gridlock since no one party can further their agendas.
Like John "Bradshaw" Layfield said on June 05, 2006, on Fox Bulls & Bears;
Wall Street loves political gridlock. Republicans aren't getting anything done. It would be a disaster if the Democrats got into office and repealed the capital gains and dividend tax. We would see a 1,000-point drop in the Dow. Right now the Dow is worried about recession and inflation. It is also hoping that Federal Reserve Chairman Ben Bernanke doesn't do what Alan Greenspan did in 1991 and send us into a recession.
Wouldn't you know a retired professional wrestler would make more sense than many of the analysts we normally listen to? I guess in a way, we are all wrestlers. We wrestle with what is fact or fiction, truth or lies, whether to buy or sell, and what we believe and don't believe. We are constantly wrestling over something.
