The Dollar Screams Uncle: Postmarket Update 9/16/09

I’m going to continue to say it, the equity market isn’t going down until the dollar finds support.  When or where on the chart that happens is anyone’s guess.  The AUD is flying along with the EUR and I don’t see a reason for that to change right now.  What’s more, if the CAD breaks through right here we could see a complete capitulatory move in the dollar, which could lead to a spike in equities and commodities.  The equity market is experiencing a slow motion melt up, similar to the slow motion melt down we experienced in February.  There just aren’t a lot of traders and investors left since the fall of Lehman to provide support and resistance to the market.  Half of the volume on the market is from high frequency trading, and half of what’s left is in highly traded financial stocks that are frankly worth little to nothing without government support in my humble opinion.  Plain and simple, there just aren’t a lot of real market participants.

Another reason for the slow motion melt up, if you were a fund manager, really any kind of fund manager at this point (equity, debt, commodities, whatever else), would you be more afraid of getting fired for losing money if the market pukes or missing this rally after losing 30 – 50 % last year?  The answer is missing the rally, here’s why.  Fund’s don’t get punished by investors with asset redemptions for hitting their benchmarks in markets that move against them.  If the average fund in your category is down 30% last year and you were down 32%, you aren’t going to lose your job.  The investor relations manager isn’t going to be happy about all the work he is going to have explaining to investors that the market goes up and down but over time it goes up more than down and the fund will ultimately outperform.  The investor will leave his money with the fund.

Now, let’s say that your fund is up 15% this year while your benchmark is up 25%, this coming after your 32% shellacking the year before.  You can try and explain to investors all you want that you don’t believe the fundamentals of the market are sound, you are trying to protect to the downside, blah blah blah blah.  Believe me, they aren’t gonna have it, especially after last year when you lost them a ton of money.  Now you are gonna get fired, and the investor is going to take his money to the best performing funds, because that is what investors do, they chase returns, and are too stupid to realize that past returns are rarely a reflection of future returns over 5 and 10 year periods.  Believe me, I did the research on this while working at my former employer.

So at the end of the day fund managers are being forced to chase this market higher and higher because they know that if they are left behind at the end of an up 20+% year, they are gonna get their hat handed to them.  And if the market tanks going into year end, they can always say no one saw it coming and everyone lost money.

Ok, enough of that rant, back to today’s action.

Patience in DRYS and GNA payed off big time today as both were up greater than 6% to close the day.  KG put in a strong performance breaking through some key resistance and LYV continues to trade parabolic.  The patterns in CF and MBT looks super bullish, I’m expecting more upside continuation from them into the end of the week.

JBLU was the major disappointment today trading up towards 7$ in the premarket only to close down marginally on the day.  A move like this worries me as JBLU has run straight up for a few weeks now.  This could signal a reversal as bulls took the opportunity to unload some stock as it spiked premarket.

My one short position in AMAG also went against me today climbing over 6%.  The downtrend here is still intact and I’m not going to whine about a short position that is still showing me a gain at this point.

I keep hunting for good short candidates but nary a stock comes across my screens.

A few notes.  Financials, home builders, and real estate were the biggest winners on the day.  Health care and the semiconductors can’t get out of their own way.  Tech has run into some big resistance so if you are playing from the long side that isn’t where you want to be right now.  I also have the feeling that the administration in Washington may have recaptured some momentum in terms of passing a bill which is putting the clamps on healthcare.  I don’t see this as a rotational rally, a rally where safer things are sold for those that are more levered and risky.  I see this as buying across the board, there is only rotation in one direction, IN.

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