Some of the most prominent technicians have turned bullish according to Bloomberg
"Feb. 24 (Bloomberg) -- Elliott Wave International Inc.'s Robert Prechter, who advised shorting U.S. stocks three months before the bear market began, said investors should end that bet after the Standard & Poor's 500 Index tumbled to a 12-year low.He warned of a "sharp and scary" rebound for anyone still wagering on a retreat, according to this month's "Elliott Wave Theorist." Short selling is the sale of borrowed stock in the hope of profiting by buying the securities later at a lower price and returning them to the shareholder."
"The S&P 500 has sunk 52 percent since its October 2007 record as financial firms worldwide posted $1.11 trillion in credit-related losses and the U.S., Europe and Japan fell into the first simultaneous recessions since World War II. In July 2007, Prechter advised shorting U.S. stocks, saying "aggressive speculators should return to a fully leveraged short position." He has now reversed that call.
Prechter's recommendation follows the advice of JPMorgan Chase & Co.'s U.S. equity strategist Thomas Lee, who today issued a "trading buy" recommendation on the S&P 500. The index fell to 743.33 yesterday. Lee set a "short-term" forecast of 800."
For whatever it's worth - I am actually in agreement this time but based on two different indicators- preferred stocks and discounts on closed-end funds. Below is my logical sequence
1. Financials are leading the market
2. The vast majority of recent declines has been driven by deteriorating liquidity rather than fundamentals
3. Discounts of closed end ETFs are one of the best indicators of disorderly selling because they have lower liquidity
4. The discounts of ETFs I am closely following (IGD, QQQX, EOS, ETW, EXG) have reached levels not seen since the "turn around" days of last fall. I believe this is bullish
5. Preferred stocks of financials are also great indicators of fear. Much better than actual common stocks.
6. Every market bottom of the last 6 months was reached on the day when PGF, PGX and PFF have formed a "hammer" on the their charts following major sell offs.
7. We are now seeing an identical pattern has formed over the last three days. See PFF chart below- source Finviz
All of the above leads me to believe that market rebound is currently in the works. If preferreds keep going up - I will deploy a lot more cash and sell short term puts to take advantage of the declining volatility.
P.S. To answer some of the questions I received over the last several weeks:
1. I don't buy preferred stocks using an ETF
2. I use stop sells to limit my downside!
