Philippine traders do not feel any tinge of difficulty within the markets, but Asian and US Markets traders are feeling differently. So the US market rallied on an oversold condition. Do we bring out our pom poms and cheer away this rally? Here are some excellent links I’ve been reading, as well as a summarized version for each.
1.) Taken from Pragmatic Capitalism : He believes that the US markets is in a bear market. A big critical event of course is still what will happen on September when FED Chairman Bernanke’s intervention in the markets.
The Long Term Sell Signal (Technical Action Only)
When the market is oversold in a bear market, our first concern should be that prices, rather than advancing, will slide even lower because the buyers have left the building. That doesn’t mean that the market can’t rally. It does mean that the market is less likely to rally, and, when it does, the rally is likely to fail. On the left side of the chart I have annotated a portion of the last bear market, which illustrates dismal price performance in spite of oversold indicators.
2.) Scott Grannis – Valuations “Corporate profits are fantastic—what’s wrong with equity prices?“
Stocks are very cheap by historical standards, and the last time they were this cheap, in the late 1970s and early 1980s, was an excellent time to invest from a long-term investor’s perspective. Skeptics would counter by saying that this time is different, because 1) politicians are incapable of spending restraint, so taxes are going to rise significantly, 2) the economy is going to be miserable for the foreseeable future, pushing profits way down, and 3) the Fed’s super-accommodative monetary policy is going to push inflation and interest rates much higher. Maybe so, but that’s about what it would take to justify the current level of prices.
Bottom line: you have to be very pessimistic about the future in order to not like equity valuations today.
3.)Psy Fi Blog- Perfect Article for Long term investors! Welcome to the world of asset price volatility.
There are risks. In any case, I would rather be a buyer here than 15% ago, and I believe the data is on my side.
Several other points are worth noting. One, failed signals are an ominous sign of significantly lower prices. I would consider the prior bull signal (see the June 12, 2011 commentary) a failed signal (see “A Floor has Been Set”), and the result speaks for iftself. Two, this is a bear market until proven otherwise; therefore, this is a counter trend trade.
– The Faceless Trader