This week begins with talk of the G-20 meeting in Brazil and the associated statement that the group "is prepared to act urgently to bolster growth.". As well, we heard of China's intention to spend more than 500 billion dollars through an economic stimulus package. Interestingly, the market has yawned at the news so far - resuming its expected test of the lows that were registered 5 weeks ago.
This is the talk we need to start hearing in order for us to believe a bottom is in - from a fundamental perspective (governments will spend money, companies will get contracts, earnings will start to rise, etc.). Coupled with this talk of government spending, the banking crisis seems to be cooling down as both Eurodollar & Libor contracts have registered bottoms in price (with nicely defined upside targets) putting the trend in corporate rates back in line with Fed-fund futures.
From trading for more than 20 years I want to stress to the public that this is a dangerous part of the bottoming process. Why you ask? because one has the tendancy to assume a bottom is in. There is no bottom as of yet and we must remain on the bearish camp until such an event happens. While what we are hearing sounds good, the process may take quarters to start showing up on balance sheets.
Yes, a bottom might come in the next few days but it also may not come for months. So continue to be patient, watch the stated marks on the SPY (top:100.86/bottom:83.58) for a breakout and be patient. If either mark is broken, trade appropriately.
That's all for this week,
Brian Beamish FCSI
the_rational_investor@yahoo.com
the-rational-investor.com
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