When to Ignore the Technicals

When the Fed chief says he doesn't care about a weak dollar, or the prices of commodities rising so that we can avoid deflation, you better believe the market will move higher on that. Except now EVERYONE is going to jump on the short dollar / long commodities trade. If you want to help inflate the bubble, jump on in, but I would suggest that you use options so you don't get burned when the bubble bursts.

Some of the only good economic news that I've been able to find:

The Baltic Dry Index has doubled in the past month. It's still more than 50% below its all-time high, but still nothing to sneeze at.

I'm not willing to participate in the market's ecstasy at these levels, but I am a little short financials and long-term bearish over the next 6-9 months.

August 25, 2009

Consumer confidence helped boost the market up today. However, the Baltic Dry Index is still clearly in a down trend as seen in this chart:
This should signal that commodities prices are headed lower, and with lower oil, you expect the the large cap oil services stocks to start dragging down the rest of the market.

I am a little concerned that anytime we get any sizeable pullback, all these fund managers that missed the rally are stepping-in and buying the dips. I think they're setting us up for a nastier pullback this fall than we otherwise would have had.

Putting a 20 multiple on earnings, I'd say fair value for the S&P is around 880. When people finally realize that, this market is going to get ugly fast. But for now, it looks like we're going to continue to drift higher.

Disclosure:
At the time of this writing, I had no position in any of the stocks mentioned.