This rally is for real

Posted by admin on June 1, 2009

I must say I still believe this is a bear market rally, but I am not standing in the way of this market rally.  We have gone from the low of 667 to 942 today since early March.  That is a 41% rally in 3 months.

Now I know we dropped from about 900 down to 667 in two months at the beginning of the year.  I agree we overran it to the downside, but I have to think the market is at about fair value right now.  This rally is being led by all the cash that has been piled up on the side over the last 6 months and technicals.

I pulled off some of my SDS I bought last week at a slight loss since it broke out of it’s recent trading range.  All looks well for a run to 975, but I will be reallocating my account back to a 20% cash position to take some of my profits.

I still do not believe the market is in for a new long term bull, as retail sales are still flat to down, the savings rate was 4.2% in March.  The S&P has earnings estimates for 2009 of $54.  If this is correct a fair value with a PE of 17 would give us a S&P value of 918.  So we appear to be at fair value and probably can run up some more prior to the Q2 earnings releases.  Be careful as the hedge funds and prop traders seem to be in control of this market right now.  Keep some cash on the side and don’t be afraid to take some profits.