S&P’s Record Month

A Return Not Seen in 18 Years

By Bryan Bottarelli
Thursday, April 30, 2009 12:14 PM EDT
Thu, 30 Apr 2009 16:14:00 GMT

Dear Bottarelli Research Member,

As we get set to close the books on April of 2009, I find it rather amazing that the S&P 500 is on the verge of registering its best monthly percentage gain since December of 1991. That’s a monthly gain that we haven’t seen in 18 years! In many respects, that’s why I’m stubbornly holding onto our short positions. After all, if you take a step back and review what events have been driving this rally, you’ll see that this is could be one of the most manipulated and orchestrated market rallies in history.

SPX

For example, banks and financial institutions have all changed their accounting standards, allowing them to report earnings in a positive light. If you don’t like the rules, just change them.

At the same time, companies have aggressively slashed their earnings guidance, and now they’re reporting numbers that are beating estimates. Once again, if a number doesn’t look good, just change it.

We’re also listening to the Fed and the Treasury speaking out of both sides of their mouth, while slowly and ambiguously releasing conclusions from their own stress tests. And don’t forget, these same two institutions continue to dump unprecedented amounts of money into stimulus and bailout packages funded by selling even more Treasuries to foreign buyers. All the while, unemployment keeps rising and GDP keeps falling. And yet, the markets continue to rally on this news. Just today, for example, the most profitable company in the world, Exxon Mobil, reported a net profit that was down 58%. Wal-Mart recently posted numbers that were weak as well. Nevermind, says the markets. Ignore all of that news. It’s time to buy.

Forgive me if I sound overly sarcastic. I just don’t want loyal members like you to get duped by this nonsense. Our financial markets are in one of the most fragile periods in history, and I really don’t think that some temporary bookkeeping changes will fit the problem. That’s why I’m still holding our FAZ calls. Plus, commercial real estate could easily be the next shoe to drop, sparking a whole new laundry list of fears and red ink. That’s also why I’m maintaining our SRS calls. Now I admit, we’ve all heard about the amounts of money on the sidelines and the upside effects of short-covering. Perhaps this accounted for the initial bounce, but nothing like we’ve seen lately.

The bottom line is this: We’ve just had a massive rally which was steroid-juiced with everything that our policymakers had in their arsenal. I’m not sure it can last much longer. Therefore, we’ll maintain positions that offer us profit potential if we see a forthcoming pullback. If we need to adjust this strategy, we’ll certainly do so. As always, I’ll keep you fully informed via your daily alerts. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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