Ruff Rides the Rally with Caution

Ruff Times, edited by veteran Howard Ruff, is up 20.4% over the year to date through March, according to the Hulbert Financial Digest's count, compared to a negative 10.56% for the dividend-reinvested Dow Jones Wilshire 5000.

Ruff wrote recently: "The stock market has made a dead-cat bounce, even though the returns are spectacular for short-term investors, which I am not. The long-term problem with the stock market is two-fold: 1) its earnings will decline as business sags deeper and deeper into this recession which will depress stock-market prices; and 2) the price/earnings ratio (PE) is still way above the typical PE at the bottom of bear markets. The stock market will have its ups and downs and literally suck Wall Street investors into short-term rallies as they try to pick 'the bottom.'" (MarketWatch)

Ruff's conclusion: "Sell into these rallies. The stock market is toxic and will be for several years."

Well there's confidence for you! And this from a guy who's made 20% during the last year.

Jim Cramer Says "Depression is Over" - Laughing Stocks Rise

Megaphone mouth Jim Cramer is auditioning for a new job as Wall St clown. Below is a video with guru Jim announcing that the depression is over, the Federal Reserve are geniuses and that pumping over $1 trillion dollars into shell-shocked economies is going to be the Lazarus touch.



Now this guy is in serious need of his own oxygen tent as his own company lies on the slab next to his reputation. Calling a bottom every time there is a temporary minimum is just plain stupid. Everybody can do that. Eventually everybody will be right and ignore all the false signals. Selective amnesia means he can carry on being loud, but volume is no indication of truth.

The next shoe to fall will be the dollar. Maybe not today, maybe not tomorrow, but some day the Fed's bluff will be called. China has gained some increased power in the IMF and World Bank due to its reserves. It has been calling for the dollar to be scrapped as the world's default reserve currency. This may happen slowly as the IMF issues more SDR loans. SDRs are bizarrely denominated in dollars but are a pool of currencies in which the dollar has a weighting of just 44%.

A renewed dollar slide may help US exports in the long term but the short term effect will be to stoke up inflation. The monetarist knee-jerk reaction will be to hike interest rates thereby trampling on the new shoots of an economic spring. It will, however, give Cramer the clown another go at shouting "Bottom!" For the moment, watch the key resistance level at the 200-day moving average.

Rally convinces some top performers - but not all

First the bad news: In his comment after the market close, Dennis Slothower of Stealth Stocks Daily explicitly cited Wednesday's last-hour rescue rally as cause for caution.

He wrote: "The intervention we are seeing in the markets right now is blatant and strong -- apparently hoping to convince J.Q. Public that the train is leaving the station. There is a strong and concerted effort by the Fed, the administration and their cooperatives to paint this tape higher and higher, without any pull back.

He continued: "The normal process of backing and filling has not been allowed to take a normal course, possibly out of fear that it will get out of hand and seriously challenge the new bear market low set on March 6th -- just a few weeks ago."

Slothower's point: "This kind of intervention often ends badly though, as no selling relief leads to a pressure point where eventual selling erupts into a volatile profit taking decline over a day or two that can quickly remove weeks of gains." (Marketwatch)

The other two newsletters cited seem to be building up some faith in this rally, but the above quotes have to be taken seriously. The manipulations are fairly obvious when one is looking at the markets as they happen. Interventions have to be cost-effective, so usually take place at crucial times of uncertainty... such as now.

Having rallied some 20% one could call this a new bull market - after all, a 20% drop signalled a bear market. The 800 level of the S&P 500 is important here. However, the 200-day moving average is still just above 1,000, so another 25% higher. The index has, however, broken above the 50DMA. I would wait for this level to be tested and, if holds, would be a weak buying opportunity.

A Trading Strategy for a Flat Market

The possibility exists that the stock market in March will go neither up nor down, needless to say.
It's also possible that it will go nowhere, trading in a narrow range and ending the month at more or less the same level at which it began.

Well, duh. Of course. So what?

But it is surprising how few of us devise our trading strategies with that possibility in mind. Ask a group of investment gurus to offer a trading strategy for March, for example, and almost all will base their recommendations on a bold forecast of a big up or down move for the month.

Whether it's human nature or not to overlook sideways markets, they are a fact of life. And, at least according to some analysts, we may very well be entering into such a period now --late in a bear market but not yet ready to begin a brand new bull market.

Perhaps the most spectacular example of sideways action in U.S. stock market history came between 1966 and 1982. The Dow Jones Industrial Average first rose above the 1,000 mark in January 1966, and yet still traded at that same level in the latter part of 1982 -- more than 16 years later.

In, and out, like a lamb?

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This goes back to the article that there are 20-year cycles that are quite noticeable when looking at stockmarkets from, say, 1900. There are 20 years of growth followed by 20 years of going nowhere. From a long-range perspective those lean years just look dull and flat. But living within one of those periods, as we are probably doing now, those bear market lows look very painful and depressing.

All the talk of bottoms becomes even more meaningless as any real bottom could well be followed by a few years of sideways movements. Having a good strategy for sideways markets is the best advice at the moment. The same strategy will also catch the next bull market - when it happens - but is not wholly dependent upon it.

This is why a buy-and-hold strategy only makes sense if your time horizon is at least 20 years, otherwise it is an easy but costly way to invest.