Trader Talk

Bulls And Bears: The Case For Both Sides

Bulls and bears are engaged in a furious fight today--bulls are emboldened because oil traders sold off oil, despite a bullish drawdown in inventory, and stock traders did not sell off the market when those bullish oil numbers came out.

They say this is the beginning of the end for oil's dominance of the stock market. Let's hope so, but so far the evidence of a top is tenuous.

The bulls’ main arguments:

--Economic data weak, not awful (look at GDP)

--Dollar rally resumes

--Commodities are acting toppy: not just oil, but copper is at a 2-month low, look at charts for gold, aluminum, platinum, palladium: all toppy

--Bond selloff continues—while traders are not delighted with the prospects for higher rates, it does represent a renewed awareness of inflation and bonds down means more money potentially for stocks.

Bears are equally adamant:

--These are brief rallies in ongoing bear market: it is a lot of nothing

--Attempts to call bottoms in homebuilders, financials, retailers unsuccessful!

Bears have a point here. They note:

1--Bulls have attempted to call bottoms in HOMEBUILDERS since November--since then there have been at least 3 significant attempts at rallying--all of which have amounted to nothing, i.e. we are exactly where we were in November.

2--Bulls have attempted to call bottoms in FINANCIALS, beginning at the end of January, when they argued that fourth quarter results would see "the mother of all writedowns" and financial would begin rallying in the third week of January. That rally lasted 2 weeks. Another rally that began at the bottom in March also fizzled, and we are essentially just a few points above the March lows for most financials;

3--Bulls argued that RETAILERS were ridiculously oversold in January, but like financials brief rallies in January and March were immediately met by selling, so most retailers (ex-Wal-Mart  ) are only a few points off their lows.

So, the rally is VERY DICEY and traders, particularly bulls, are VERY NERVOUS. Is it a new bull market? We don’t know yet, but be encouraged that there are traders (maybe only 10 percent of active traders) who are betting there is.

Questions?  Comments?

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