An 'Inconceivable' Rally…Part 2

Posted by Howard
on July 26th, 2009

My first ‘Inconceivable Rally ‘ post struck a chord. That was back in May and looking back…still a great point to buy based on today’s prices.

As of Friday, the rally has become so ‘inconceivable’ that Microsoft $msft was going up. Unfortuneately for Microsoft, they are an economy (weakly run) and it makes sense that during a massive rally, even it would get dragged along.

With $msft disappointing (great summary of Microsoft’s lameness in all areas ) and $amzn reversing on it’s earnings call , is the inconceivable rally over?

How do we continue higher at this point:

1. One could argue for further inefficiencies from ‘High Frequency Trading ‘, The Plunge Protection Team are doing just fine.

2. You could argue that we have just plain recovered and that the global pumping of money is just going to super inflate assets.

3. The old fashined way…’Real Leading Companies’

No matter what is happening in the world, leaders will show up as all-time highs. In improving and better markets, they show up in droves and you can see patterns and get a feel for leading industries as breakouts are clustered around industries and even countries now.

I will keep following the price action of the old and new leaders. Following price leaders is still the best way to track the market’s real health in the least amount of time.

The IBD 100 is filled with Chinese consumer internet companies – again, American software and internet companies, wireless chipset companies, mobile businesses and even a few high end clothing retailers. This all makes sense to me and more so if the economy is truly growing.

All the talk is about homebuilders and semiconductors, but they could rally another 100 percent and just be in an extended long-term shitty trading range. I am not good enough or smart enough to gauge that mess. Furthermore, I can’t get my head around the capacity glut that I know still exists from their bubbles. In the semiconductor space, other than a few specialty chips, nobody has extended pricing power.

From talking with the founders of many startups and companies with revenues less than $10 million, there is great growth opportunities.

The biggest companies are still reacting to the slowdown and cutting costs to meet Wall Street estimates. I am ignoring them other than news of top line growth. Same with leaders of the bull run from 2003-2007.

If top line does not pick up, the trickle down from cost cutting will get more severe as at least Americans will save more and spend less.

I have no real feel for the Chinese market so can only act on price and common sense. Their internet fascination and it’s inevitable growth, combined with the sheer size of the market tell me that’s the place to be and that money management and discipline will let me participate. The government is the wildcard.

The noise from the bulls and bears is deafening and downright confusing, but I am liking the new leadership and it makes sense.

Everytime I force my opinion on this market, I hedge myself with an eventual losing trade.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.