Relative strength integers are congesting at resistance points each time our New Year rally attempts to gain traction. For this reason, and others, I am skeptical that we can sustain, with any duration, a meaningful upcycle. Bear in mind that although short cycle rallies are tempting, the dominant secular theme always prevails. In this instance we have a lot of work to do to dismantle the underlying negative fundamentals which precipitated our current bear market.
That’s
not to suggest that portfolios cannot make money in here. Our portfolios have found success in
mid-maturity corporate bonds, as well as trading with a shorter pulse in
utilities, basic materials and technology shares. As much as I disdain trading in the
short-term, the configuration of advance-retreat cycles makes the case that
much more compelling for the time being.
But
trading the market for short-term capital gains does not address the underlying
failings of the global market to recalibrate itself for success. Ongoing austerity programs and radical social
responses make it difficult to achieve consistency in trading or mind-set. Too much is in flux for confidence to return.
There
is no doubt that my measurements calculate a greater significance to credit
decimation and cash flow than any other factors at this time. The large run-up to the global
hyper-expansion almost went unnoticed as long as people kept making money. Credit, itself, is not bad as long as the issuers and
borrowers engage in fair practices. In this case,
too much was taken for granted.
Since
2008, markets have been wary of expansion, particularly credit-driven
expansion. We are seeing a deleveraging
of credit as well as a deleveraging of confidence. Cash is king, even if it nets no significant
return on investment.
As I
have written, there is no “global solution” to a situation that can’t be put
into a “one-size-fits-all” box. Instead,
individual solutions are required, emanating from legislatures, parliaments,
edict, mandate, or elections.
In
any case, though, real growth is not occurring. Financial accounting might be good for the
bottom-line, but it doesn’t create new customers or top line growth. Whatever that “better mousetrap” might be, it
is well-hidden at the moment.
Salsa dance.
The
one step-two step pattern of trading this past week takes the consolidation
into deeper territory. The longer we
fail to “break out,” the longer, and deeper, the likelihood that we continue
the bear secularity. Disappointing earnings are
as plentiful as those mechanically engineered good earnings about which
I just wrote. The difference, though, is
that the bad ones cut a little deeper into our psyche and our communities.
The market is still more likely to go down than up,
simply because we cannot sustain relative strength probabilities without
spending and demand in the economy. The robust
New Year’s/Santa Claus rally is more fantasy and hype than good old-fashioned
fundamentals. There is a subtle
distribution at the top of each rally attempt, indicating that no one wants to
keep their chips on the table for too long.
My
bottom line takeaway is that we are struggling to gain traction. As a result, the weight of the evidence is to
continue to proceed with caution.
No comments:
Post a Comment