Weekly Risk Report 06/08/2009
It is 13 weeks from the market’s low point in March. If we assume all stocks were pushed down about as far as they can go at that time only then can we understand the apparent rush which has driven the i-Wave statistics into a frenzy in recent weeks. While three of our i-Wave components remain bullish to neutral, Speculation as we measure it is seemingly out of control and very bearish.
The composite has moved all the way through its Neutral range in just three weeks to be borderline High Risk. A few weeks ago I mentioned corks rising rapidly to the surface. I believe this is what we are seeing. Driven down by short selling, panic and fear through the start of March, stocks have had almost nowhere else to go but upward. Still, it’s hard to imagine that Pier 1 Imports is worth nearly 1000% more than 13 weeks ago. Or, that Benihana’s restaurant is doing so much better that its stock is now worth 272% more than in March. These percent changes only make sense when we look further back in time to see how far they had fallen by early March.
It will most likely take the markets some time to consolidate all these extremely rapid gains. Further, there will be a delay before companies start to show a return to more normal business. It would be reasonable to assume that the markets would move generally sideways until we again see some solid earnings and moderate growth.
Still, the statistics also show very strong technical uniformity in opinion among market participants. Very few new 52 week Lows are being seen and the Absolute Breadth (advancing stocks vs. declining) has been very strong:
The graphic shows nicely the time when essentially everything in the way of stocks was being sold. It now shows that since March, essentially everything has been on market participants’ shopping lists.
We remain vigilant in watching how the markets are acting and continue to sell incremental amounts of stock funds as prices rise.
