Barry Ritholtz at The Big Picture thinks the coming rally should be used as an opportunity to exit most long positions.
Markets have reached the point where they are so oversold they are due for a corrective bounce. But I expect this bounce to be short. It should be used as an opportunity to exit most long positions, especially those that are cyclical, rate sensitive, or of the high Beta variety.
We suggest using the lift over the next 2 weeks to sell aggressively.
Several factors point to a rally...
Despite all these oversold signals, we remain concerned about the ongoing deterioration in Market internals and the Macro environment...
While I am not exactly bullish on the US stock market myself, I had suggested in a recent post that it might be more resilient than those in Asia and Europe. Recent economic news has reinforced my view that at least Asian markets are likely to be among the first to fall.
In Japan, the government reported today that salaried household spending in February fell 3.8 percent from a year earlier. In January, spending by such households had risen by 2.6 percent. Prospects for a sustained improvement in the months ahead look poor as Japan's unemployment rate also climbed to 4.7 percent in February from 4.5 percent in January.
In South Korea, the government reported today that industrial production in February fell 4.6 percent on a seasonally-adjusted basis after rising 3.1 percent in January. Production fell 7.3 percent from a year earlier. Corporate investment in plant and machinery fell 3.6 percent from a year earlier after rising 15.9 percent in January.
Yesterday, the Singapore government had reported that manufacturing output fell 9.8 percent in February on a seasonally-adjusted month-on-month basis. Output fell 10.2 percent compared to February last year.
One caveat for South Korea and Singapore, though, is that Lunar New Year effects may have accounted for at least part of the falls.
For my views on the outlook for the Singapore stock market, see "Singapore stock market flashes warning". My commentary yesterday entitled "Electronics stocks still underperforming" focuses on Singapore electronics stocks. As the titles suggest, I am not particularly upbeat on either the electronics sector or the overall Singapore market.