April 9, 2010
IT'S GREEK TO ME
Robin: "Gosh Batman, Greek is still Greek to me."
Batman: "It's Greek to a lot of Greeks too."
But to Fitch, Greece is still investment grade even with a downgrade to BBB- with a negative outlook. The rating agencies have been doing a great job of being ahead of trouble for investors these past few years right?
Anyway the news really is more about markets today which is also Greek to many investors.
The sprint to DJIA 11,000 was underway late today. Reaching it isn't based on any positive news since that average is just "window dressing for the tourists" as they say. But, it's what Main Street is most attentive to and it sells soap for the financial media. It's this type of action (using other people's money) that gives rise to conspiracy theories and reinforces the view the street lacks integrity. Nevertheless, DIA 11,000 has been a final target for many pundits and now earnings must come through to justify high current PEs that dominates every sector.
Why should we complain when we're long? Well, we're naturally nervous, markets are overbought and there is little volume.
Speaking of volume there was little again today and this must be a long spring break for traders. Breadth was positive but overwhelmingly so per WSJ below.
The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
Per Investopedia: The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
Per Investopedia: The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
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Should I have led with DJ 11,000 in lieu of Greece? Perhaps, but the Greek situation has been leading the news for many weeks now. Global sovereign debt risk is growing and it's just another time bomb waiting to explode like the housing bubble/derivative mess in 2007. It's just a matter of time before you know what hits the fan.
In the meantime, it's party on for those few that can. And, based on recent volume data it is just a few having some fun.
More significantly markets are much overbought; PEs are in the stratosphere; volume is anemic; dividends are low; the punchbowl while still in play is being challenged; and, earnings are now upon us. Earnings will have to be much above expectations now to justify current prices. The dangers are some misses and, worse, that good earnings are already baked-in to prices. In either event this would lead to a significant sell-off.
I don't like this market one bit, but we're long because that's our job as systematic and disciplined investors.
Let's see what happens. You can follow our pithy comments on
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