The S&P 500 is up about 5% since I changed my stance on the stock market from bullish to bearish back on November 19th and all of the fundamental reasons for the change are still intact (although I’m neutral on a technical basis). Recent news has been mixed or negative and not helping the situation is the announcement over the weekend from Chinese Premier Wen Jiabao that the yuan is not overvalued and that there is a chance of a double dip recession in China.
Many of China’s trading partners (including the US) have been upset with China’s handling of their currency during one of the most devastating economic period in recent history (China had been gradually appreciating the yuan but stopped in 2008). Adding to protectionist issues, Google said over the weekend that is 99.9% sure it will be closing it’s China.cn web portal and China made a warning to Google’s Chinese partners that they will be responsible for any search related problems on their own website.
Despite all this negative news flow, investors has been hanging on to hope with the tired lines of “things are getting less worse”. Bulls are still reciting facts about recoveries in past recessions as if the more they repeat them, the more they will apply to the current crises. Unfortunately they do not.
It would seem that people are ignoring fundamentals and the more the stock market rises, the more bullish they will become. The downside to this strategy is that most people who are bullish are already invested. It is almost always short sellers covering their positions that launch the market into it’s final peaks before coming down and this is certainly how it feels to me.
The chart above from Bloomberg gives some good color to the situation. There is no “clear” indication that we are topping out right now but there are definitely more (and better) reasons to be cautious than to be optimistic. The rally over the last month has been strongly moved by short sellers having their stops hit (trust me, I’ve been trying), and I fear that a few months from now we will be looking back at this point in the stock market as a double top and possibly the highs for the year. Be careful everybody.
Disclosure: Net-long the stock market with over 35% assets in cash
Categories: News & Commentary
Bearish, bullish, Can the Rally Continue?, china, DIA, DJIA, Double Dip Recession, Dow Jones, GOOG, Google, investing, LinkedIn, NASDAQ, Premier Wen Jiabao, QQQQ, Rally, renminbi, SPY, Stock Market, Stock Market Rally, Wen Jiabao, yuan
They said never to try and catch a falling knife, but I just tried. Outcome TBD.
RIMM dropped 15% post-earnings, after missing revenue by 2% and beating EPS expectations (before one-time items) by .03 (Barrons).
I see the revenue miss, and my interpretation of it is as the product of a few items, chief among which is the iPhone. In this quarter, AAPL released the iPhone 3GS, and of course there was a lot of hype. People shopping for a new smartphone were probably overwhelming drawn to it being a new product, taking them away from RIMM. Not helping the case for the BlackBerry, they had no new compelling products. The tour was released, but it was essentially a Wi-Fi-less Bold warmed over for Verizon, nothing too compelling there.
I see a few catalysts for revenue growth in the future, that will help alleviate the symptoms from this quarter. First, new products, including the Storm 2, which is supposed to have a vastly improved screen over the older, much maligned version. Secondly, the next quarter will start to see the ramp up in Christmas sales, the strongest time for most retailers with RIMM being no exception, yet they are guiding for flat earnings! My read on that is they are trying to be conservative, taking a page out of AAPL’s book. Finally, the push for more presence in the consumer market will undoubtedly hurt their margins slightly. But in the market for smartphones that have a physical keyboard, RIMM is still the only big player. The rumor that came out yesterday that Verizon was no longer interested in carrying the Palm Pre further solidifies RIMM’s position in this sector.
Position Disclosure: Long RIMM at this price. Long AAPL over mid-to-long term, would not recommend a buy at this price. No position in PALM, but my opinion suggests a short.