Thursday, May 7, 2009

Is the Market Turning?

S&P 500 Chart

The market was down today after several days of rallying.  This despite the fact that there was relatively good news that came out.  Most of the news as of late has been pretty good and for many people that is the problem.  When the news starts being better than expected you have to get a little bit nervous.   I'm not sure that we have really turned the corner but I do believe that after a 30% rally the downside is probably greater than the upside in the near term.  I just do not believe that you can have 9+ weeks of consistent upside gains of 1% and 2%.  I also really did not like that Nasdaq was the index that was the most down.  It was the leader up.  It now looks like the leader down as people try to get out with their profits.

The good news is that the bank stress test came out after hours and for many of the banks it was better than some had feared.  Tomorrow will be telling.  If the market reacts poorly to this relatively good news, than I think expectations may have overshot on the upside and the market may be going down over the next few weeks.   If the market rallies like it seems like it is in the after hours than you might get an even higher move to the upside.

I played the market to the downside this morning.  I took a position in the ultra-short ETF in Real Estate, SRS.  The real estate sector has rallied a lot in the last few weeks and I do not think it can continue like this.  When I look at the fundamentals, I think things are going to get even worse than right now.  I know there are those who think we  have reached bottom, but I'm not one of them.  I actually had a gain of almost 5% in the day in just this one position.   I am only taking a very short term position in this.  I'll take my gains or losses quickly rather than try and stay in this market too long.

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