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Friday, May 20, 2011

Market Thought... contradictions

I just see a bunch of contradictions right now.  First and foremost, its the value proposition of this market. LinkedIn excluded, valuations are not stretched by any means of the imagination. Even the momentum names are in such a funk that they seem interesting.

From a pure market perspective, the SP500 is sitting on support and not overbought.

The set up and value proposition indicates it has room to continue upward.

The greatest support to this thesis are the transports. The transports looks to want to keep rising, with a similar situation, bouncing off support and not overbought.

On the flip side, the semi index looks like it will break down. And Goldman's down grade may have provided the extra push for the semis to go lower.

Historically, the semis leads the Nasdaq. (Although I can make an argument with the monumental shift in computing via virtualization, cloud computing and emerging tablet computing, the driver of the semis, the PC market, is no longer as relevant. But it maybe too soon to presume the historical pattern of the 'semis-leading-the-market' will change this go around.) The down side seems minimal as there seems to be solid support around 56-57.

Then there is the VIX approaching the lows that have always made me uneasy. But I forced myself to remember my re-evaluation post, which suggests the VIX can very well go towards 10.

Its a mixed bag. An argument can be made for either side. My bias is obviously on the bullish side, especially when looking at valuations and freight use growth.

Basically, the way I am playing it is to not hesitate to enter desired positions, but unloading some of others to maintain a cash level to be able to take advantage of unmerited declines. (And any serious market decline I will view as unmerited.)


  1. You're putting way too much thought into this, given that tomorrow is Armageddon!


  2. shit, I forgot!! I would have spent the day motor-boating :)