After a 20-point drop in 20 minutes into Friday's' close, the SPs are having a relatively dead cat bounce in Sunday's globex session (up 5 points right now). I went to Bloomberg's site to see what type of spin was being put on Friday's selling. Here are some typical quotes:
ABN Amro, JPMorgan, BlackRock and Schroder…"equities are even more of a buy because profits are growing, shares remain cheap compared with earnings, and the Federal Reserve isn’t restricting credit…"
ABN Amro…"The fundamentals still look good. If you sell equities, what are you going to buy?"
JPMorgan…"This has been something of a gift. You have the chance to buy at particularly low valuations."
Morgan Asset Management…"Valuations with steady Fed interest rates make stocks a buy…"
"The SP500 at 15.4 time estimated PE is the lowest in 15 years, thus any slide in stocks may be limited."
OK…Hello Hello Hello…..how come these people are not asking WHY stocks are trading at the lowest PE ratio since 1991? If the economy seems "poised to reaccelerate and earnings have been much better then expected", how come the Small cap shares are now down on the year? I see no fear. Only supposed glee at the buying opportunity that this presents. Wrong emotion. If I oversaw 175+ Billion as the above managers do, I guess it would be pretty hard to be bearish cuz I wouldn’t stand a chance of lightening up my exposure without pushing the market a whole lot lower. Where does that liquidation trigger truly come in? Until there is a bit more fear, it might not take long to retest those Feb lows.
Here is some reading for the week to shed light on the opposite side of the coin:
If you can’t get this book, at least scroll down and read the Ten Heresies of Finance.
#2. Financial theories fall short. – Standard financial theories don’t even begin to capture the full range of market risk.
#10. Value is not worth much in financial markets – Financial analysts like to think that companies or currencies have a basic economic value, They try to get at this value by examining assets, cash flow, etc. – This implies that the relationship among these factors determines value to which rational buyers and sellers will inevitably assent. What matters in markets is not absolute value but differences in price from place to place or from time to time.
“Markets always roil, always deceive and always bubble. No absolute or bedrock “value” exists in the investment world. Markets are much riskier than most people or most financial professionals realize.”
Yes, the market is deeply oversold on a very short term basis. Let's start out the week by seeing if the index futures can manage a retracement to their hourly EMAs, though it still looks like they can flush lower first. I like to look at a 20 period exponential moving average of the SP500.
However, sometimes aberrations or outliers, such as the extreme levels of "oversold" in technical indicators, are the market’s way of trying to tell us something. Who knows where the markets will be a few weeks from now - up or down. Take it one swing at a time. Take heart in Mandlebrot’s thesis that volatility is more predictable then prices. There was a saying one of the specialists on the floor used to say when I was a peon floor trader, “Take the cookies when they pass the plate around.” Enjoy the volatility while it is here. Nobody knows what the future holds, especially those managing those 200 billion dollar funds or they would not be defending their positions so vigorously on Bloomberg