Too much optimisme in the stock market

This morning you will find yours truely deeply concerned – there is too much optimisme in the stock market now – let me give you a few pointers:

80% of all stocks in DOW trades above their 50 Moving Average… this has indicated crust in the past.

(Click on chart to enlarge)

and the Bull/Bear in same risk…..

The past week action must have been disappointing for the bulls:

• The G-20 was MAJOR SUCCESS — right ?
• FASB – will help the banks— right?
• Breaking 825.00 was key — right ?
• Banks are back – right ?

On the other hand I note, as yesterday, that Switzerland going into DEFLATION is the worst news at all in this cycle – the mere idea that Europe/G-20 will face the Japanese disease is simply scary.

People forget DEFLATION will make credit even less available – as in an environment of DEFLATION the “real price” of lending goes up as deflation increases your debt burden- hence the low leverage of Japanese corporates.

Deflation is a tax on borrowing money, and the present model of VALUATION needs to be ditched as “free cash flow” analysis no longer works – this will make companies with debt even less worth and it will “contain” an expansion of successfull business’ as their REAL COST of funding expansion is rising.

Even Greenspan & Trichet, the two people most in denial in this major crisis, realise if the end game becomes DEFLATION its over – and we will see 400 in S&P…. So… monitor Switzerland fight against deflation – if their policy tool becomes competitive devaluation it will merely export the problem……

All in all it the above indicators have made me slightly negative again, and I have initiated short S&P and DOW Futures…..as midday yesterday….. also still short EURUSD & Gold… while I took minor loss on the EURCHF….. I also reentered long EURSEK…..

Biggest Dow Point Gains and Percent Gains

Today’s 497.48 point move (6.84%) for the Dow was the 5th biggest one-day point gain and 23rd biggest one-day percentage gain.  Below we highlight a list of the biggest point and percentage gains for the Dow since 1900.  We’ve now had 11 400-point up days during the current bear market, so as happy as they make investors feel, they haven’t been out of the ordinary.

Source: Bespoke Research

Tricom Today 28-1-09

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The market is up 40 points compared to the 43 point rise predicted by the SFE Futures.The Banks putting in a great performance. Financials up 2.8%. CBA up 7.2%. Property Trusts are underperforming after Westfield – the sectors biggest company – announced late last night it would writedown $3bn worth of assets. Building stocks are struggling on the back of a profit warning from Boral – down 15%. Resources down 0.4% – BHP up 0.4% and RIO down 2.8% saying it won’t rule out an equity raising to pay down debt later this year.The Dow Futures suggest an 87 point gain on Wall Street tonight.

Tricom Today 23-1-09

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The market is down 104 underperforming the 24 point fall predicted by the SFE Futures this morning. Resources and property taking it in the neck down 4.2% and 3.5%. BHP and RIO down 3.9% and 2.1% as China announced their 4Q GDP figure yesterday at 6.8% – in-line but the slowest pace in 7 years and down from 9% in the 3rd Q. Japan and China have already cut steel production by 28% and 5% respectively. Oz Minerals received a bridging facility for $140m to tide them over until the 27th Feb when their $1bn in debt needs to be rolled over.
Financials weak all the banks down about 3-4%. CBA reported funds under administration and management down about 11% each due to net retail outflows of about $749m. The Dow Futures suggest a 34 point fall on Wall Street tonight.

Tricom Today 21-1-09

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Our market is down 66 but holding up well considering the Dow Jones falling 332 overnight and having its worst inauguration day fall in history. Most of the damage was already done in yesterdays 3% market fall. Financials falling again with all of the big 4 banks down 3-4%. Property Trusts down 3.0%, Westfield down another 4.1% today to 1173c and resources down 1.9%.

Obama’s inauguration is all over the media, blocking out almost everything else. Obama’s speech has continued with the message that it will get worse before it gets better with a somewhat disappointing plea for patience. Dow Futures currently up 26.