This blog post originally appeared on RealMoney Silver on Sept. 29 at 8:30 a.m. EDT.
Back in the dreary days of March 2009, I wrote a column, "
," in which I crafted a chart that marked my forecast of about 1,070 for the
, using a
target of $107.50, into late summer/early fall. This target compared to a March price (at the time of my column) of about $67.00 and represented a projected outsized and ambitious gain of about 400 S&P points. To many, this forecast seemed simply ludicrous back then, but the objective was reached precisely last week, and the SPY closed at $106.40 on Monday, within one point of the target!
My overriding contention back six months ago, was that we have seen an important low not only for 2009 but perhaps even for a
as a deeply oversold, worsening sentiment and positive internal market divergences were a combustible combination, especially given the
, which was demonstrated in the turn in a majority of my
Here is what I wrote at that time:
In the months ahead, the fear of being in will be replaced by the fear of being out....A poorly positioned hedge fund community, with an historically low net long exposure and rankled by negative investment returns and the fear of continued redemptions, should provide the initial thrust to the S&P's 50-day moving average of about 810. It is important to recognize that, historically, strong rallies that have durability (like in 1937-1938) but, as previously written, typically don't let investors in during the first advancing leg. With such a clear burst of momentum, the fear of being out could drive the S&P 500 as much as 15 to 40 points above the 50-day moving average, paralleling the 20% third-quarter 1938 move and producing a short-term top and a temporarily overbought market. The spring should be characterized by a backing and filling as the sharp gains are digested, similar to the September-October 1938 interval. Sloppy second-quarter warnings will weigh on the market during the April-May period, but the markets could move sideways, bending but not breaking. Signs of market skepticism, sequential economic growth and evidence of a bottoming in the residential real estate and automobile markets (after a sustained period of under-production) could contain the market's downside, providing a range-bound market with a firm bid on dips. As well, the results from the bank stress tests and the release of a more coherent and detailed bank rescue package could provide further support to equities.By June, economic traction should begin to take hold from the accumulated fiscal and monetary stimulation coupled with the large drop in energy prices. While it will be too early to demonstrate a broad economic recovery, evidence of stabilization will be clearly manifested in improving retail sales, and stocks will take off for their final advancing phase. With fixed income under increasing pressure, large asset allocation programs at some of the largest and late-to-the party pension plans (out of bonds and into stocks) could trigger an explosive rally in the middle to late summer. This move by July or August could close the October 2008 gap in the SPDRs at around $107.
has been met with the same sort of cynicism that
was greeted with in early March 2009. Regardless of that criticism or the eventual outcome, in both cases, I have tried to outline my specific logic that had led to my conclusions.
As such, I feel at home with my top call now, even though it is deeply out of favor, as the fear of being left out has brought out the animal spirits and has replaced the fear of being in, which was prevalent at the market's bottom. As I have
, what is much more important than the swing back toward positive sentiment from a negative sentiment extreme in March is that a wide range of outcomes must now be considered against a consensus that looks for the certainty and smoothness of rapid 20%-plus year-over-year S&P growth.
Doug Kass writes daily for
, a premium bundle service from TheStreet.com. For a free trial to
and exclusive access to Mr. Kass's daily trading diary, please click here.
At the time of publication, Kass and/or his funds were short SPY, although holdings can change at any time.
Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.