Zeev's Turnips Patch-No Politics (ZEEV)

[augieboo]

Marv, I agree that the bond market is where the fuel for the next big rally is currently stored. After all, it dwarfs the equities market, so it really doesn't take that much of a shift from bonds to stocks to send stocks blasting off.

But I think we are at the beginning of a second-dip recession, (note I said RECESSION, not DEPRESSION), which will be a bit nastier than the first dip. I also think that the market has not discounted this fact yet -- at least not correctly.

So, I agree with Zeev that we are headed for a big rally, (cyclical bear move, whatever), but I disagree on two issues surrounding that next big upswing.

1. I don't think it comes until we are quite close to, or possibly even a tad below, 1000 on the COMP.

Why 1000? Nothing magical.

First, I don't think the market is nearly "oversold" enough to produce a large rally at this point -- judging by the volatility indices, bullish-percentages, the summation indices, the McClellen Oscillators, new highs and new lows, tick and tickq, etc., plus my reading of the monthly, weekly, daily, and intraday charts for the COMP, NDX, INDU, SPX, SOX, BTK, BKX, USD, and a few others that escape me at the moment.

Second, big round numbers really tend to excite the market. When we reach the 1000 area there will be a whole lot of folks screaming that it "can't possibly go lower than this!"

So, combine that with the lingering "irrational exuberance" in the market, plus a bit of cash shifting from bonds to equities, and we'll have liftoff.

BUT

2. I also disagree with Zeev on how high such a rally can go. I think 25% is a reasonable expectation, and 30% might be possible, but anything above that is highly unlikely.

Why?

Again, no magic involved.

First, the economy really isn't in very good shape, and (I think) it's getting worse, rather than better.

Second, stocks are still extremely overvalued by any reasonably trustworthy metric. (Forward earnings estimates, which almost uniformly still include all kinds of "pro-forma" and "one-time," crap do NOT meet my definition of "trustworthy.")

Combine overvaluation with the realization that earnings STILL aren't coming back and I think that bonds will once again look like the safe/smart choice, thus severely limiting the upside potential of the next big rally.

JMHO,





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