Thursday, December 11, 2008

Where Is the Leadership in this Rally?

For the last three weeks, I have been impressed by the confidence and resolve shown by the bulls as they have consistently used pullbacks to flood the market with new long positions. Perhaps algorithms have no fear

More recently, however, as the bull leg has stalled around the SPX 900 mark, I have found myself thinking about the lack of ‘proper’ leadership. Yesterday and today, the rallies have been led by commodities, with gold and energy equities the top performers.

At the same time, the three sectors I think are most critical to the recovery, my so-called ‘indicator species’ sectors (financials, homebuilders and consumer discretionary stocks), have been unable to get out of the red today.

I am not sure where the leadership will come from that will eventually push the SPX back over 1000. Today large cap technology names First Solar (FSLR), Apple (AAPL), Dell (DELL), Research in Motion (RIMM), eBay (EBAY) and Intel (INTC) are all strong performers. Frankly, I would expect technology to play a strong role in the next big leg up, but leadership may come from a number of other sectors.

There are few guarantees in the stock market, but I can guarantee that gold and energy are not going to pull the SPX up over the 1000 mark and leave financials (XLF), homebuilders (XHB), and consumer discretionary stocks (XLY) behind.

[source: StockCharts]


Anonymous said...

red flag . vix intra day 10% below is 10 day ma. If it closes this way i wouldn't be surprised to pull into the 870-850 zone

Bill Luby said...

Yep. A couple of other VIX-related red flags over the course of the last three days as well.

High VIX complacency relative to SPX action.

Anonymous said...

think those VIX short term red flags may say less about the medium term bear market rally (which I expect) than they do about a potential short term pull back.

I think that the 'wrong' leadership is because we are not at a bottom. At best we are at a temporary bottom.

If we don't get a very big bear market rally then I suspect that that will be a horrible sign. Even at the end of 1929 they got a big bear market rally. If there is none now then it means that the fundamentals will be completely overwhelming what has been a very long period of very high fear.

Eric said...

Maybe we just going to see a lull like Carter Worth has predicted. I am positive about what I see in the Baltic Dry Index. But I am scared by some of the smart people who are predicting S&P 600. I definitely like a black swan trade, or selling very far OTM Puts. I am looking at selling JPM Leaps. You can collect 15% on the $5 2011 Leaps. or 20% on the $10 2011 Leaps. That is 50% off its 52 week low.
My Treasury Shorts are stagnating, probably too early as usual.

Dumb Money said...

You might take a gander at GDX for the sector that is taking off.

Anonymous said...

love the blog and the analysis.


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