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Is This The End of The Stock Market Rally?

Stock-Markets / Stock Index Trading Nov 27, 2009 - 05:33 AM GMT

By: Andrew_Abraham


There are really no isolated incidents in the world. Today we are waking up to the news that Dubai might be defaulting on its debt. Stock Markets around the world are plummeting. There are many other issues that hardly made the news. Firstly Vietnam devalued their currency and their populace as Mark Mobius has coined the statement has entered into a “Surge of Fear”. There is confusion and uncertainty once again. Vietnam raised interest rates to try to lower inflation.

However there is a backdrop that really no paid attention to. This is why the public always loses money. Investors Intelligence reported this week the lowest number of bears in the last 6 years. The bullish to bearish ratio is 3 to 1 as well. The bullish percentage measured by Investors Intelligence surpassed 50% this week as well. One can also look at the the RSI of the SP 500 and it is in the 80% range..Basically grossed overbought. Putting all these pieces into the puzzle, the stock market looks vulnerable. The public always gets it wrong.

So how does this effect trend followers?… First the good news.. Then the bad news.. Must be balanced. Nothing just happens.. Many trend followers have been long the interest rates..Which are benefiting from today’s action…as well as long the Japanese Yen. The bad news is many trend followers have been long gold and it is getting clobbered..As well as many trend followers have been short the US dollar and today it has strengthened..

As well as many trend followers have been long the stock indexes which are now getting clobbered.. Bottom line effect.. Probably a small effect on trend followers.. In times of crisis’s as this might be the start of… trend followers and commodity trading advisors usually have positions on in the direction and profit from these times. Nothing is perfect that is why one needs to have a diverse portfolio. Some trades work…and some do not.

The real question is….Is this the beginning of the end for the stock market rally? In all honesty I would not be surprised in we open way down on the SP 500 only to rally up. Anything can happen…just have your thought out plan in place.

Andrew Abraham

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading advisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

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© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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