A Trading Low or the Market Bottom?
35 reasons why March lows are an opportunity, not a bottom.
They say time heals all wounds. For investors around the world, they hope that time has arrived.
On the back of massive government intervention and JP Morgan's (JPM) federally orchestrated takeover of Bear Stearns (BSC) - not to mention the 1000-point rally off the lows - the question everyone wants to know is whether the worst is behind us.
Is the incessant supply that dominated the last six months simply taking a breather or will we look back at March, much as we did in 2003, wishing we had the wisdom to identify the classic signs of a meaningful bottom?
It's within the probability spectrum that we've turned the corner and the market will climb the wall of worry. To truly appreciate that potential reward, however, we must understand the magnitude of the attendant risk.
In our never-ending effort to provoke thought and provide smiles, Minyanville offers 35 reasons why the March lows were an excellent trading opportunity but not the ultimate bottom.
- Resistance at S&P 1405 and DJIA 12,800 (along with an incessant pattern of lower highs across sector indices) remains in place. While sideways action above support is "basing," similar action under resistance is "churning."
- Remember how many pundits called a bottom in tech all the way down the slippery slope? Ultimate lows occur when people stop trying to catch the cusp and sell positions as a function of frustration.
- Maltese dogs are still favored over Rottweilers by the elite Park Avenue crowd.
- Ben Bernanke continues to insist we're not in a recession. Admitting you have a problem is the first step toward solving it.
- Hank Paulson has yet to melt a reporter's face with his cold, hard stare.
- The International Monetary Fund told us last week that this is the worst financial crisis since the Great Depression.
- Nobody held a benefit for the second-homeless yet.
- We never saw true capitulation through the lens of denial, migration and panic.
- $500 trillion in derivatives tie the global machination together, which is why the Bear Stearns' bankruptcy would have led to "financial Armageddon." Given the interdependency of financial assets in our finance-based economy, how can we intelligently assume that it was a "one-time event?"
- Jimmy Cayne can still afford Twinkies and Skittles.
- We just had the biggest non-farm payroll decline in five years and the size of the unemployment rate increase, from 4.8% to 5.1%, never occurred in post-war history without the economy being in the throes of a recession.
- Homebuilders have yet to offer two-for-one deals.
- Fannie Mae (FNM) and Freddie Mac (FRE) have yet to be nationalized.
- Franklin Raines is still collecting $1,000,000 year to play golf.
- The S&P declined 32% during the ten post-war recessions and the latest lethargy only measured 19% from the October highs to the March sighs.
- While rallies typically begin when recessions are at their midpoint, how can we assume that we're in a shallow recession given the magnitude of debt and the underpinnings of derivatives?
- Merrill Lynch (MER) employees have yet to tape Susan B. Anthony coins to the windows of their corporate offices.
- The financials historically bottom below book value. On the March lows, the S&P 500 financials had a valuation of about 1.3 times book.
- Angelo Mozillo still has a tan.
- During the 1989-1991 recession, approximately 25% of the financial universe disappeared. The tally for this recession is less than 7%.
- You can tell someone you work in finance while attending a cocktail party and they won't grunt and walk away.
- Few banks have incurred the kind of provisioning charges that go along with a mild recession, let alone a full-blown credit crisis.
- Alan Greenspan is still getting paid to speak.
- If the market can't rally with a weaker dollar, what's it going to do when the greenback rallies?
- Due to the liquidity injection by the Federal Reserve, the largest firms are still growing and risk is being concentrated into fewer and fewer hands.
- Bernanke hasn't broken into tears on Capitol Hill during congressional testimony.
- ETF's haven't launched on Fool's Gold or Cubic Zirconia.
- President Bush hasn't held a press conference to declare that we've won the war against foreclosures.
- BusinessWeek hasn't predicted a Depression.
- I gave my broker an order to buy the bottom and I'm still waiting for a fill.
- China hasn't bought the Chrysler Building.
- January was down more than 5% and only once in history has that happened, when the low for the year occurred in the first quarter.
- The level of the debt in the system-even though the IMF approximates close to $1 trillion will be written off by financial institutions-is unsustainably high relative to the declining economic activity.
- Traders are buying upside calls like they're going out of style.
- You're still reading this!
To be sure, the combination of massive fiscal and monetary stimuli-along with monstrous intervention-could be enough to shift the benefit of the doubt from "a" bottom to "the" bottom in a normalized marketplace. The trillion-dollar question, quite literally, is whether we're indeed living in traditional times.
I remain of the view that this is the most significant stretch in the history of the financial markets and when our grandkids study this period, they'll do so with a sense of nostalgic lament. It's up to us to decide the particulars of that perspective and our relative standing in the grand scheme of tomorrow's dreams.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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