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Annual Review: May 2009 Highlights at Trader’s Narrative

Annual Review: May 2009 Highlights

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I’m reviewing this past trading year by looking back at each month and highlighting the most significant comments and analysis from this blog. This is the review for the month of May, if you missed the previous ones, here they are: January, February, March, and April.

My goal is to reflect on the accuracy and quality of my thinking as well as to summarize the year that was so that I’m ready for the new challenges that a new year will bring. As a trader, it is vital to go over the past so we can learn from the successes and failures. Hopefully you’re doing the same thing and incorporating it into your own routine.

As you’ll recall, the rally from the March lows was well under way by now. In fact, the sheer tenacity and intensity of the spring rally had confounded almost everyone.

The question everyone was wondering in May was, is this for real? and how long can it keep going?

So, here are the highlights from the month of May 2009:

  • Coppock Guide About To Give Bullish Signal
    This slow moving long term indicator was finally about to give the all clear signal for a bull market. The Coppock Curve for the Nasdaq had already given a signal in April and if it managed to not fall significantly, we would have a signal for the S&P 500 index. I was monitoring this indicator since January and finally was ready to “welcome our new bull market overlords.”
    The Coppock Guide is very accurate but it has given us false signals in the past (most recently in 2002). While I was still apprehensive in May to accept it as a guarantee of a bull market, the signal has worked out extremely well.
  • Brazil’s BOVESPA Shows Impressive Relative Strength
    While everyone’s attention was obviously captivated by the unstoppable US market, the emerging markets were even hotter.
    Brazil’s relative strength was white hot and after I pointed it out in early May, it just kept going. For the year it is up 85% (so far) and since I mentioned it +37.5% (so far) - individual components like Banco Bradesco (BBD) went up even more (+65%).
  • Comparing Wedge Formations: Then & Now
    Returning to the comparison of the two March bottoms (2003 and 2009), this time I looked at the similarity in the wedge formations. I argued that this pattern was bad news, not just because it was a wedge but also because it was forming just under the 200 day moving average.
    The S&P 500 index didn’t collapse but it had difficulty climbing at the same torrid pace as it had. It was two and a half months of range bound trading until the index managed to clear the 950 resistance level.
  • Sentiment Overview: Week Of May 15th, 2009
    By mid month, sentiment gauges like the AAII and the Investors Intelligence survey had almost the same number of bears as bulls. As well, the put call ratio in both the CBOE and the ISE were giving an unmistakable sign of too much optimism.
  • Weight Of Financial Sector Relative To S&P 500 Index
    A great timing tool for sectors is to watch how they wax and wane in popularity by measuring their weight in a wider index. When they balloon, as technology did in 2000 it is a very good sign of a top. In March we saw the opposite as the financial sector shrank to a multi-decade low (as I showed in the accompanying chart): “the March lows were a major low where the sector was as unloved as it has been for the past 20 years”. From the very bottom on March 6th 2009 the Philadelphia Banking index (BKX) zoomed up 160%.
  • Is This Bear Market Rally Over?
    Since the bullish percent index for the Nasdaq was approaching levels which usually corresponded with tops, I wondered it the top was in. But the key distinction was whether this was a powerful thrust like the kind we saw in 2003 or just a run of the mill counter rally. My hunch was that the index would push into ‘oversold’ and stay there. And that’s pretty much what happened. Thank you Mr. Coppock!
  • A Walk Through World Stock Markets
    Taking a closer look at the international developed and emerging markets, it became rather obvious that the strength we were seeing in the US equity markets was not isolated. There was clearly a concerted and powerful change in trend throughout the global financial system.
  • Tobin’s Q Ratio Valuation Gives Bullish Market Signal
    Yet another slow moving (glacial in comparison to Coppock’s Guide) indicator that was signaling a significant low in equity markets. The Q ratio compares the replacement value of assets in the economy with their current price.
    Although it hadn’t fallen to previously historic low levels, at an estimated 0.43 it was very close to multi-decade lows. Since then, we’ve snapped back of course. Come to think of it, I’ll do an update soon.
  • “Bailout Nation” By Barry Ritholtz: Book Review
    You can easily fill a whole bookshelf with books on the financial crisis (without even trying). What sets Ritholtz’s book apart is that it is great fun to read both for its ample use of graphs, cartoons and charts as well as his writing style. I enjoyed the book because it touched on almost every single facet of the causes of the crisis (and a few I hadn’t thought of). Ritholtz wove them together to explain how so much could go wrong and using history as a template, suggested what we could expect to come next.

Jan - February - March - April - June - July - Aug - Sept - October - November - December

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