Monday, June 22, 2009

The market is starting to look like me around the 4k mark of a 5k

There are lots of global news items that have distracted the media while the market fell pretty sharply today - down 2.5% to 3.5% for every major index. A quick review of the markets performance shows that while we're still up significantly off the lows

* The markets have essentially been flat for the past 7 weeks.

* Over the past 3 months the markets are up just over 10%.

* There was a 25%+ jump in the markets in mid-March over a three week span. If you missed that move (and many did) you've probably recovered a bit, but it probably seems like a small move compared to last year's moves.

After today's move to the downside we are back within striking distance of major technical support levels. IF these prices are breached on the downside the risk of a serious retracement of recent gains is high. I'll watch the 880 level on the S&P 500 closely. I'll reiterate that I think that the idea of buying or selling a stock based on it's chart is like investing by star chart, but the market is being mauled by day traders and hedge funds running large technical programs. Fundamental analysis is taking the brunt of traders jokes these days. It's a tough time to be a CFA :)

A couple of items seemed to spoke investors today:

1) Insiders selling at the fastest pace in 2 years..... Hmmm, if a corporate executive truly believes that the market is forecasting a turnaround wouldn't they hold onto their equity and await further appreciation? Perhaps not if they see the fundamentals of their businesses deteriorating while the stock soars.

"Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.

“If insiders are selling into the rally, that shows they don’t expect their business to be able to support current stock- price levels,” said Joseph Keating, the chief investment officer of Raleigh, North Carolina-based RBC Bank, the unit of Royal Bank of Canada that oversees $33 billion in client assets. “They’re taking advantage of this bounce and selling into it.”

2) The World Bank cut it's forecast for global growth today and that somehow came as a shock to the market....

"The World Bank said the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.

The world economy will contract 2.9 percent, compared with a previous forecast of a 1.7 percent decline, the Washington- based lender said in a report today. Growth will be 2 percent next year, down from a 2.3 percent prediction, the bank said."

Maybe fundamentals do matter :)

No comments: