- Market Commentary -

July 8, 2010 (FinancialWire) (Investrend Forums Syndicate) (By Yaron Sadan) (Via “The Hard Trade”) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries) — Editor’s note: FinancialWire(tm) welcomes this fist submission, originally entitled "Did you think it would go down in a straight line", from The Hard Trade’s Yaron Sadan:

The market was up 3% yesterday and the discussions with traders caught short, or trying to roll-over puts, or getting squeezed in the short euro trades, seemed way too emotional.

Let's put it in perspective. The S&P can easily go back to 1075 and it would still retain the downtrend. In fact, it can go up to 1200 and still maintain its downtrend. At least, that's what a cursory look at the charts will show. More importantly, we have the fundamentals at work. The market remains overvalued here and earnings would need to double for undervaluation to be at the extreme levels we anticipate (highly unlikely – instead, prices must come down). The problem with fundamentals is that they are an incredibly frustrating timing tool, and cannot be used for most shorter-term signals. So we wait.

In the 1930's (sorry about the comparison), reports of better days ahead started as soon as the crisis began. Heads of banks stepped in and bought shares throughout 1930-1932, politicians discussed public works and employment stabilizing, etc. The similarities, by the way, do not end there.

For example, the Florida real estate boom of 1926 was eerily similar to our own Florida real estate boom. Without making too direct a comparison, however, I do want to point out that in any financial collapse, deflationary spiral, or economic crisis, periodic rallies, strong rallies, >20% rallies, are too common and investors need to focus on the fundamentals to understand the big direction where the market is headed.

This market will continue to frustrate most investors and traders with powerful, volatile short term moves. The fundamentals, though, should give us the confidence to hold on to our positions.

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