Op-Ed: Is a Countertrend Rally Inevitable?
Fundamental, technical indicators favor a decisive move - but be aware of the obstacles.
The Bases for a Major Countertrend Rally
As most of you know, on March 2, on the Buzz & Banter, I announced that I was initiating a 50% long position in US equities (from 10%) with the S&P at roughly 700. On March 5, with the S&P at around 680, I implemented a 100% long position.
I've maintained this core position since then and have traded around it using leverage. Since then, I've reiterated various times that I believe that the market has put in an important intermediate term bottom, and that the market will experience a major countertrend rally.
In a series of articles which I'll publish over the next few days and weeks, I'll make a detailed case for a major countertrend rally that should take the S&P 500 to at least 950 and possibly to 1100. In this article, I'll merely outline the case.
The Fundamental Bases
1. Central banks and governments around the world will frequently announce implementation of increasingly coherent policy measures to deal decisively with the economic and financial crisis.
Injections of liquidity through low interest rates and quantitative easing, combined with stabilization of the financial system, are the keys to success. Fiscal stimulus is practically a sideshow. Policy actions by the US Federal Reserve have been decisive and are providing global leadership. After a slow start, US Treasury measures to stabilize the financial system will gain increasing traction as investors realize the profound implications of these commitments in the short and medium term. European, Japanese and other global policy makers will soon step up the pace and scope of emergency actions. Increased global coordination is likely.
2. Between March and May 2009, we'll see a surprising and dramatic turn in the second derivative of economic data in the US, Japan and a few Asian Tiger nations.
The data will show that the pace of contraction is slowing. In some cases, data will rebound sharply and even show growth. This will surprise investors, and will lead many market participants to believe that global contraction has bottomed out. While I believe that such positive data will likely be misinterpreted, I also believe that it will come as a very positive shock to the market and will sharply call into question the mega-bearish economic scenarios that have become part and parcel of the market consensus in the past few months.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter