Courtesy of Phil at Phil’s Stock World
Q2 Tuesday – Ending With A Whimper, Not A Bang
What happened to our great rally?
We started the quarter off well enough, with the Dow at 7,522 and S&P at 787 on April 1st, we flew right up to 8,000 on the Dow and 840 on the S&P the next day but then it took us the rest of the month to gain 200 more points and the last day of May we finished at 8,500 Dow, S&P 920 - nothing to write home about on the whole. June 1st was very excting as we made all our gains for the month that day, flying up to Dow 8,800, S&P 944 but that’s where we called a top and cashed out and it’s been pretty dull ever since as we’ve bounced up and down between 8,800 and 8,300 on the Dow and 940 and 900 on the S&P, waiting for a breakout one way or the other.
It’s dull to stay in cash, it’s like going to the track and not betting on any races. We really thought we’d get a proper indicator by now and we had fun betting the downturn from the middle of June but even that fizzled and left us back in cash as we head into the holiday weekend. On the bright side, the VIX has come down substantially and we are now able to pick up long options again at reasonable prices. This will be fantastic and give us some great leverage but we still need the market to pick an actual direction.
At least now we have earnings coming so we can evaluate various sectors and place some bets for Q3 but index buying has ruled Q2 and the performance of individual stocks has been washed away as a factor as machine trading has yanked the broader market up and down on a daily basis. It used to matter how IBM or INTC was doing as an individual company, now the entire Nasdaq can fly to the moon and take PALM, AAPL and RIMM with it, even though it’s not very likely that all can do well in the same space for very long (remember MOT?). We are no longer deluding ourselves that 2Bn people in Asia and Africa will be sporting the newest smart phones on the beach next summer yet the pie in the sky valuations persist, as if there is infinite room for all competitors to sell in the global marketplace. In fact, emerging market valuations are are back over 40 on a p/e basis so who says we can’t have another “dot com” boom?
Commodities are trading like .com stocks, where no business plan is required as long as you sell something that can be traded on the ICE or the CME, where EVERYTHING is valuable to somebody. Not since YHOO was priced at $300 a share has the greater fool theory been more evident with more and more investors chasing fewer and fewer commodities as the reality of production shutdowns due to low demand meets the unreality of a speculative bubble that is fueled by wave after wave of new buyers, who can’t find anything else to put their money into so they chase the only “performing” sector and that’s commodities.
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