2009-06-18

Time for a shopping list?

I put long-bonds into most of my Marketocracy portfolios today, building an initial position. I think they will drop from here, especially with the $104 billion Treasury auction next week—even though the sales are at 2, 5 and 7 years. My belief is that the "green shoots" will stay green and the 200-day moving average will keep the market afloat through the summer, but in the fall, the average will flat-line. From here, the market can afford to drop more than 5 percent below its current level and still stay above its 200-day late into summer (assuming it traded at an average of the current level). A correction between now and then could provide more room by knocking the average lower. I'm not too reliant on the technicals because they can shift; I anticipate the catalyst will be weak economic data. If by September and October we're still seeing anemic data, investors will start losing confidence in the optimistic scenario. The "green shoots" are a theory that need confirmation in the data, without it the theory crumbles. Up through May, I believe we saw a market rebound. Since then, there's been some optimistic buying, and I don't think this has been exhausted. Finally, if you plot 2008 versus 2009, it's eerily similar. We sank early in the year 2008, culminating with the Bear Stearns death in mid-March. This year, the market fell until March 6. Last year, shares rallied into June, with oil and commodities leading the charge. This year, oil is up 100% and the market is in full rally-mode. Last year, Fannie and Freddie caused a mini-panic in mid-July, two weeks after oil had topped and commodities began to decline. If we follow the script, there should be a mini-event sometime around the middle of July, give or take a couple of weeks, then a recovery and another panic in the fall.

I tagged this post as musings because that's all it is. I'm not trading on this, just trying to get a handle on events.

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