Wednesday, February 8, 2012

Time To Jump In?

Bears are all beaten down and gone for good. Bulls are rejoicing and mocking others as to how smart they are and those who are on the sideline are asking the question: “Is it the time to jump in? What if the rally passes by and we miss it?”

This is the worst trap an analyst can fall into. However we may try to be unbiased, once we have made a call we are married to it. So what do we do? Having made a call for top and proved wrong, shall we now jump in and start buying?  But it is logically not possible to do that either. The rally is long in the tooth and all indicators are out of whack. Neither can we continue calling the top because that would be silly. And this entire dilemma for mere fifty SPX points!

The following chart from Streettalklive shows that the market is 2/3 standard deviation away from the mean.

And if we can take a broader outlook, we can see that always the market comes back to the mean.  Even if I agree to those bullish points of view, I think the risk is more to chase the bus now.

While liquidity continues to drive the market, eyes are fixed on the never ending Greek Drama. Per latest report, everything is back to square one and risk currencies are diving down. The interesting thing is, Germany has decided that it will not throw away good money after bad and instead of throwing out Greece they are making things so difficult for the Greeks that they will default and walk out. That is why you see all these impossible to meet demands and criteria. Now it is being said that even if Greece agrees to the conditions, which they have not, they will not get 140 billion at one shot. They will get it in installments and the 1st installment will be for 40 billion only. Question is, have the market priced in the Greek default?

I am not going to show the various indicators that are all showing extremes and red lights. So all I can say is however tempted we may be to add to our short position, it is better to wait for the trend line to be broken. And if you are thinking of going long, it may not be a bad idea to wait it out for a while more. After all, we live on Earth where the rule of gravity still works.