June stock market rally is coming!!

28th May '09 by Isaac

9 comments 3517 reads

ee has stated in the peak oil thread

'looking for a summer sell-off.'

It may not happen IMO. I have maintained the view for some months now that the markets will surprise people to the upside and i have been dead right.

On the weekend before the markets bottomed i said :

FWIW it is my belief that a rally is coming very soon and there is a very good chance that it will be a big one. Enough to get the media talk clap trap about how the low has been put in the bear market and the Obama Stimulus is working...

http://boards.fool.co.uk/Message.asp?mid=11471413&sort=username

Those that have followed my posts on TMF will know that i have been bullish ever since. On the 7th May i called for a short term top in the markets :http://boards.fool.co.uk/Message.asp?mid=11540633&sort=username

Have a look at the charts the markets did not go any higher then the top on May 7th : http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=uk%3Aukx&sid=0&o_symb=uk%3Aukx&freq=1&time=4

I have said on TMF in April that this is a CYCLICAL BULL MARKET in a SECULAR BEAR MARKET. When we are at the END of this move i.e. the last point of the top the marketsare likely to breakdown hard & resume the bear market.

If you like this is the last Hurrah!! However i still believe there is more upside in this market, my targets are now 1000-1100 in the S+P. I.e. another 20-25% upside to go. But we are at a point where people should be cautiously bullish and as such i would just stick to FTSE350 stocks. I am impressed with the market reaction since the May 7th top.

However i should add that I have kept very little exposure to small caps because of what my indicators tell me the markets will eventually breakdown in the markets longer term. I want to be in a position to liquidate swiftly as the final top will result in a big breakdown. We have not seen the bottom of the bear market! Please bear this in mind!

The biggest dillema i have as an Investor is whether i should sell my exposure to Commodities. I am a commodities investor and my experience from 2008 tells me Commodities can and may breakdown again if the stock markets fall.

What has been very encouraging the past week or two is Oil prices seems to have detached from…

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Isaac

29th May '09

ee,

and IF people more generally conclude that the market has run ahead of itself (with oil prices rising, UK politics in disarray post-election and the GM bankruptcy....to name but three factors) then profit-taking is likely.

People have already started to conclude that since early May hence the reason why the markets have not gone higher then May 7th. The last two points you mention are already in the price, once the GM crap is out the way it will be forgotten and markets will look ahead. The market has already priced that in for bankruptcy. WShak is playing a blinder with the bonds, with a better then expected outcome it can only help the markets!

As for UK politics, well there is speculation of an early election & if the Tories win then it will be a positive & therefore will clean up all this mess, which the markets like & is positive.

Apparently the "Car scrappage scheme hailed a success"

http://www.guardian.co.uk/money/2009/may/29/car-scrappage-success

How can the scheme be a success? This stupod government is encouraging people with perfectly good working cars, albeit old ones to scrap them and take on more debt to buy new cars just to help a bunch of people in the Motor industry!! How is that in anyway a success?

As for Oil prices that is an interesting one, it will keep rising until people think it has got ahead of itself ...Inventories are at RECORD highs ...

I think that fundamental results from most businesses will continue to disappoint - and that the hope of some of an early recovery will soon be nailed and replaced by fears of stagflation. That may not feed through until after Q2 has actually ended though.

Agreed - It is why i don't see this bull run continuing in the long term and it is why the Secular bear will continue. The FED is ALL IN, what will they do next time? This is the Last Hurrah.....

2010 might look rather better though

Maybe not. My thinking is the secular bear is likely to resume later this year or next year...

I am expecting the markets to be more like the 70's with sharp moves up and down as described here :

My thoughts are the markets are likely to be in a very long term trading range. Just like the action of 1960-1980 when the markets had sharp jumps up followed by sharp drops as the recovery was so weak.

To put more detail in to what i am saying :

Late in 1961 the DOW topped at 734
Bottomed in the middle of 1962 at 535
Topped in early 1966 at 995
Bottomed late 1966 at 744
Topped late 1968 at 985
Bottomed 631 in 1970
Topped in early 1973 at 1051
Bottomed in 1974 at 577
Topped in 1976 at 1014
Bottomed in early 1978 at 742
Topped late 1978 at 910
Bottomed in early 1980 at 785
Topped in 1981 at 1003
Bottomed in mid 1982 at 808

http://boards.fool.co.uk/Message.asp?mid=11522819&sort=whole

Darron,

The state of play at the moment is that there are a lot of people still saying that this is a bear market rally and sitting on their cash. Equally there are those who are bulls who invested over the last two months, drifting some of their cash into the markets.

The perfect conditions for a bull market to resume. When there is loads of cash on the side i am more comfortable being long. If all or most of the cash is invested whose left to buy up and drag the markets up? I don't see a crash until most of the cash is in the markets. When the markets go down it affects most people. IF most of the money is on the side then how can it affect most people?

The reason for that is simply that we are entering a lull period. There is really sod all inthe way of real news from companies likely over the coming month and so we are waiting on a macro indicator to either confirm the "green shoots" or point the way down.

Very good point and one i have thought about. Please give it further thought, if there was news coming out of companies or significant Economic data etc then it is more then likely to be bad right? Because the Economies are in a mess. Given that there will be a lull period will it not be much much easier to manipulate and drive the markets higher? Ofcourse! :-)

I don't think it will take much to float the markets up. The less bad is the new good.

DOnt get me wrong, Im stilll about as gloomy about the UK outlook as can be but the commodities angle still looks good. So I continue to favour the overseas earnigns orientated plays, especially thos with significant exposure to the raw materials/commodities sector/overseas infrastructure plays and EM reflations plays

That is my theme of investing for the next few years. I have been looking for some Chinese Trackers to buy in the next significant correction. I want to buy some foreign stocks with high yields and likely to grow. I wish TMF setup an overseas board like Sirlurk requested. It is where the money will be made in the coming years.

OT but I was chatting with one CIO at the beginning of the week and VOD came up (dont ask how). We were both saying that it probably looks a solid buy for long term/income clients due to the low rating, cashflows, divi, EM demand growth but both of us came ot the conclusion "Yawn". So i might well add 25% over the coing year ie back to the 140p or so level but its just so dull when you could make that many times over by timing other market moves. DItto somethign like RSA. Not going to go wrong really buying either of them for the next 10 years or so (especially for the income cluents) but theyre just so dull.

lol I have recently bought a chunk of VOD shares! :-)

6.5% Yield and it goes Ex Div next Wed! And yes i love the Geographic spread and the potential EM growth. VOD benefits from a weak pound. I don't mind if it is dull, I am being paid a decent sum to wait for the market to price it correctly again. Perhaps an easy 20-30% to be made there. Also one should note as it is one of the main holdings in tracker funds and as people tend to contribute monthly etc to tracker funds every month more and more VOD shares are being bought up therefore pressure for the price to go higher. Ditto RDSB, HSBA, BP. GSK. They are very good stocks to hold in a HYP.

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omh

I am confused now. Saw the ticker (Schroder Aisan Pacific) and expected a post that was, at least in passing, relevant to that fund. But this seems more like a general market talk.

Have I missed something?

emptyend

ee has stated in the peak oil thread

'looking for a summer sell-off.'

It may not happen IMO.

A June rally is certainly a possibility, IF sentiment favours a continuation of the bull run in the very near term. No fund manager would want to be left looking under-invested at quarter-end IF sentiment has swung that way.

However - the summer is longer than just June....and the reverse also applies, and IF people more generally conclude that the market has run ahead of itself (with oil prices rising, UK politics in disarray post-election and the GM bankruptcy....to name but three factors) then profit-taking is likely.

But we'll see ....its not worth debating to death!

djpreston

Morning chaps.

Its an interesting idea (what will happen in the next quarter) and one that weve been debating furiously (thats me and some CIOs and FMs).

Interestingly many of the bulls are/have been top slicing sme of their gains whilst the bears have been putting a bit of cash into the market on market falls. Bizarre eh?

Im still sat onthe sidelines to be honest. As you recall from TMF, I was very bullish end of Feb but I have been top slicing some of the positions and now have reasonable cash balances. The reason for that is simply that we are entering a lull period. There is really sod all inthe way of real news from companies likely over the coming month and so we are waiting on a macro indicator to either confirm the "green shoots" or point the way down. There are a lot of potential problems out there, such as those EE has mentioned. Its an inflexion point really.

On balance Id prefer to see how the Q2 results look, especially from the banks. Now it woudl appear (from comments in the US media and analysts) as if the US prime banks have continued to see excellent results from FICC activities (as they should do given the refinanciing going on). That will be good to see.

Sure there is still a heck of a lot fo money out there to be invested and pressure is building with low rates for the managers to do something. Id gsay that the rise in the price of corp bonds, especially high yield bonds, is a sign that some have started to move money in but when it comes to equities, many are still happy to wait it out for now. IF the markets were to move higher then the pressure coudl force them to act. Equally, if the market fails to fall back significantly then the time pressure could also force their hand (ie much closer to the eventual economic upturn and peers striding ahead of them in the performance leagues)...

dodge1664

First post after registering on here so that I can listen to emptend - I doubt I'm the only one!

I basically agree with the argument that this is the last hurrah, which may even go on for a couple of years. At the end of the day though, the debt problems haven't been solved, its just that a proportion of the debt has been shifted onto the tax payer. What the bulls fail to explain adequately is what caused the crisis in the first place. The argument that its just a liquidity problem with the toxic assets sounds like blaming the Great Depression on the Wall Street Crash. The Depression happened because of the rampant speculation on margin that went on before. This time the problem is the mountain of debt built up using MBS. What's happened is that individuals and companies have borrowed and borrowed until the system broke. Now we're going to see the same thing repeated at a sovereign level. It really will be run to the hills times when the sovereign debt bubble blows! I can't imagine the policiticans wanting to take the austerity measures necessary to make the numbers balance again.

AbAngus

I am - I accept - extremely ignorant about high finance, but won't there be an almost irrestible temptation for future governments just to let inflation erode away the sovereign debt? If so, won't commodities (esp oil) be a good place to invest?

Ab,

Certainly my view is that I'm comfortable staying in commodity-related stocks. Inflation is, IMO, a real risk - because to choke it off is going to require the sort of action on government spending and taxation that governments normally shy away from.

OTOH, I'd be amazed if they didn't sell off at least 60-70% of their shareholdings in the banks over the next 3-4 years....and that would certainly take the pressure off!

In sum I think there are short-run risks (because I think the banks will still be taking some chunky write-offs, despite their earnings being strong in other areas (though not as strong as Q1 IMO!) ) - but the medium term looks better. I'm content to sit on cash in the pension fund and on E&Ps in the ISA for now........2010 might look rather better though. I don't think there's a rush - but of course a quarterly-focused fund manager might want to sit back in Q3 rather than the remainder of Q2?

FWIW

Gradders73

30th May '09

People should note most of the money in any bull market is made in the last part of the move, with each move up we get closer to the top and this next move up could be THE LAST HURRAH!

I think this is pretty dangerous advice. With all rallies there is often a last sharp leg up, but this is tends to be followed by a nasty correction, so unless you are pretty lucky with timing, you can get hurt badly. Maybe if you use step-ups in stop limits this can be ok, but chasing that last little bit is fraught with danger.

The markets seem very wild at the moment. The inflation camp seems to be winning the argument vs deflation, but job numbers are still terrible, GDP declines may or may not be bottoming, housing in the US is just shocking, commercial property has more bad news to bring and the leveraged loan market is lurking in the background, with bridge loan financing about to bring sharp interest step ups. More industrial job losses to come.

The macro picture in my view is about the declining dollar. Bernanke has decided that stabilising the housing market is key, therefore keeping bond yields low is crucial (more buying back of long dated vs issuing shorter) this weakens the currency and pushing the problem down the road as the rollover of debt and required new issuances build in the next few years. In my experience, debt crises always occur when there is an excess of short term funding, so this is a very dangerous strategy.

In the equity markets, any bad news seems to get brushed over and the slightest bit of optimisim causes prices to shoot up. The commodity price rally will feed into inflation numbers, but if short terms rates go up too soon, the recovery will may come crashing back.

And why does the auto industry matter? It is about a socio-economic group, the blue collar middle class, and whether they have a place in our society or we let them go the same way as the miners.

As for VOD, I just don't want to invest in them. I think their accounts are an insult to the intelligence of investors. I am still outraged by what went on with regards Mannesmann and how Orange ended up being owned by the French. Anyway, in my view it is a company driven by ego and they have a tendency to use any gains to buy costly minority stakes in other companies, albeit with stock. I'd prefer if they stuck to where they were and I could decide to make other mobile telco investments.

On the point about a 20- 30 % return being too dull, I feel the same way, but it does cause concern. If people are looking at returns of that magnitude, with rates near the floor, and saying it's not enough, then there is too much speculating and too little investment. For companies trying to get back on their feet and plan for the future, this type of short-termism must be very worrying. It is going to take years to fix the economy and concerns that investors are just looking to make a quick return and get out does not help.

June stock market rally is coming!!

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Isaac

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