Why I Don’t Live “V”
Posted: April 21st, 2009 | Filed under: Blog | Tags: CAT, CNBC, gold, lee munson, SPY | No Comments »No, this is not a reference to HBO’s True Blood, a favorite of mine (I can’t believe we have to wait until June for season 2). I am talking about the V formation of most chart patterns including the S+P 500 over the past six weeks. The issue is that V’s are not generally found in nature. Usually, we get a W or something that will either fill in a gap or at least try to retest the bottom of the V. Seven weeks ago I went on CNBC and said to raise some cash because we could see the DJIA get to 6000. Boy was I wrong! I no longer think that will happen, but DJIA 6300-7000 would take very little in this environment. Today we see CAT hit their first loss in 17 years and some M+A activity is heating up. This is good, not bad. Just keep in mind this just means we are starting to get to the bottom of the economy when solid firms go into the red and mergers of equals start popping up. It does not mean it is over, though.
In the end, I would still rather wait to see some consolidation and keep trading short term until we either retrace more than 3-6% or can go sideways for a while. Even if you don’t like the money the government is spending doesn’t mean it won’t work. The problem is that it will debase the currency. So, check out the potential double bottom on the gold charts, remember that people will still need office space in Manhattan, and keep some cash around for a mild to wild pullback. Just don’t be afraid to dip your toe in when it seems the world starts looking like ‘the end’. You generally only get 2-3 times to jump in and after that you are a broken record or a clock that is only right twice a day.