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I wanted to better understand the year that was, as well as get ready for the next year, by taking a brief look back. So for the next few days, I’ll review each month by highlighting the most significant commentary from this blog.
As you’ll recall from the review of January, the year started with a lot of hope that the worst was behind us. But February was a cruel month. The stock market bounced feebly after reaching the November 2008 levels and soon it sunk to new lows.
Here are the highlights of February 2009 as I saw them:
- Will The Baltic Dry Index Lead The Market Higher?
I noticed that this leading economic indicator was suggesting that things had started to recover. It had lead previous stock market rallies, so I wondered if it was doing so again. This was indeed the case. Throughout the year it went on to higher highs and higher lows - just like the stock market.
- A Brief History Of Contrarian Analysis
If you’re a student of contrarian analysis and sentiment, you’ll love this look back through history. Not only will you find out more about the origin of the most popular sentiment measures used today, you’ll also get to know the men behind them. There is also a list of lesser known books about the subject.
- Nasdaq Relative Strength Continues To Rise
Through the fog of the bear market, I noticed that the Nasdaq Composite had a surprising amount of relative strength (compared to the S&P 500). This was borne out when for the rest of the year, this relative strength continued unabated. While the S&P 500 rose 64% from its March lows, the Nasdaq rose 74% (November 2009 highs).
- Greed Is Not Good
My jeremiad against the surreal Wall Street bailout.
- Howard Ruff on CNBC: Contrarian Signal From Trading Gods?
Unless you’ve been around for a while, you probably have no idea who Ruff is and why having him on CNBC was such a golden contrarian signal. Check out this interview (video and transcripts) because it will help you to watch for similar signals in the future. While it took a few weeks for the market to find its feet, I consider this an amazingly prescient contrarian call.
- Comparing Bear Market Counter Rallies
Comparing the current bear market to the last one (2000-2003) showed just how brutal we had it this time around. Unlike then, we had almost no respite, no pause, no real rallies. The few counter rallies were shallow and short lived before a new wave of selling came crashing down.
- McClellan Oscillator To Buttress Market At Support
Based on various breadth indicators, I was expecting the market to hold support at the November 2008 lows. That was clearly wrong. But the alternative scenario I suggested did come true: the bears were trapped after prices went slightly lower then recovered sharply.
- The Money Supply & The Stock Market
Looking at the macro picture, it was obvious that the Fed was pumping an ungodly amount of money into the economy. Charting the per capita M2 measure of money, I argued that all that money had to find a home and that eventually, it would start to seep into the stock market and push stock prices higher.
- Volatility Index Divergence: Bullish Or Bearish?
As the stock market teetered on the edge of previous support, volatility was surprisingly serene. The last time the S&P 500 was at 750, it reached an astronomical high of 85 but this time, it was just 45. I offered two interpretations, one bullish, the other bearish. Thanks to hindsight, we now know which was correct.
- Sentiment Overview: End of February 2009
By the end of the month, the extremely bullish sentiment data was piling up: OEX options, the Rydex Nova/Ursa ratio, the various weekly sentiment surveys, etc. We weren’t there yet, but the public was clearly panicking at the new lows.
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