A Look To The Past For A Look Ahead
“Plenty
is at our doorstep, but a generous use of it languishes in the very
sight of the supply. Primarily this is because rulers of the exchange
of mankind’s goods have failed through their own stubbornness and
their own incompetence, have admitted their failure, and have
abdicated. Practices of the unscrupulous money changers stand indicted
in the court of public opinion, rejected by the hearts and minds of
men. True they have tried, but their efforts have been cast in the
pattern of an outworn tradition. Faced by the failure of credit they
have proposed only lending of more money. Stripped of the lure of
profit by which to induce our people to follow false leadership, they
have resorted to exhortations, pleading tearfully to restore
confidence. They know only the rules of a generation of self-seekers.
They have no vision, and when there is no vision people perish. The
money changers have fled from their high seats in the temple of our
civilization. We may now restore that temple to the ancient truths.
The measure of the restoration lies in the extent to which we apply
social values more noble than mere monetary profit.”
              Â
-Franklin Delano Roosevelt, March 1933 inaugural address
Things are getting out of hand and are
rapidly approaching a breaking point. Wall Street’s
(the money changers) abuse of the American public is getting out of
hand. The brokerages and money managers who control the tape have
become runaway street-gang hoodlums, who possess utter disregard for
the blatancy of the illegality of their actions. The illegality of
their machinations has now transgressed a fever pitch in the ears of
all who study the markets. How can the SEC turn away from this
obvious criminal activity they nonchalantly term
“window-dressing” each and every month? In the real
world, people go to jail for price fixing and in the commodity market
this type of thing wouldn’t get past its first try. Yet in this
“great game” (as we have been told to see it as, rather than
the corrupt and abusive game it really is) the powers of Wall Street
can do whatever they want and even change the rules midstream through
the game.
Thursday, the Nasdaq kept Microsoft
closed for virtually the entire trading session for no apparent
reason, and yesterday they decide to keep the Nasdaq open an hour
longer and then reverse that decision midway through the overtime
period. I have slapped my head in disbelief so many times this week
that I needed an icepack by the end of trading yesterday. When will it
end? Well, it certainly won’t end because of a regulatory action.
Rather, only after Wall Street concludes its goal of raping the
accounts of middle class America will we perhaps witness a call to
revamp the internal machinations of this “great game.” By
that time, the hopes of a speedy economic recovery and a continuation
of the bubble market will be laid to rest with the population instead
growing increasingly pessimistic and hopeless. Only when people start
running around looking for someone to blame for the inefficiencies and
corruption within the financial markets that resulted in a massive
destruction of wealth will we be at or near a bottom. Thus far, as
none of the minimum requirements in terms of technical or sentiment
indicators for a stock market bottom have been met, we will continue
to look for new lows in all three indices in the second half of this
year.Â
“The intellectual inferiority of the crowd” (from Crowds
and Power by Elias Canetti) “is a sign that people are
filtering and manipulating new information to make it accord with
their existing beliefs. Psychologists call this behavior ‘cognitive
dissonance.’Â Dissonant information, which contradicts the
collective fantasy, is uncomfortable, and people seek to avoid it.
They may do this by either shooting the messenger or by proselytizing
and seeking fresh converts to their fold.” In his Theory
of Cognitive Dissonance, Leon Festinger argued that “people
will tolerate increasing degrees of dissonance if they are motivated
by a sufficiently enticing reward.” In
financial markets, one might say they are prepared to ignore bad news
because they still hunger after the immediate profits of speculation.
According to Festinger,
“a
group will maintain a state of cognitive dissonance until the pain
exceeds the rewards.“
In stock market terms this might be seen as the moment when the fear
of loss outweighs the greed for gain.             Â
                      Â
-excerpts taken from Devil
Take The Hindmost by Edward Chancellor
                      Â
(in my
opinion, required reading for traders)
Remember, dear friends, Sir John Templeton once said that the four
most expensive words in the English language are “this
time it’s different.”Â
Let us now review the technical state of the indexes:
As this chart illustrates, the composite rallied into significant
short-term resistance at the regression lines of the contracting
triangle that it broke down out of. In addition, the gap down from May
29 (shown as the horizontal line) came back into play and provided
some resistance as well. Remember, when a stock or index falls out of
a formation of this nature as hard as the Nasdaq did it is not that
easy for it to rally back up the other way again (unless, of course,
we are talking about the Dow Jones Industrial Average which has been
effortlessly manipulated by Wall Street because they only have to buy
the highest weighted stocks in the Dow 30 to drive the index higher).
Be on the lookout for a few days of weakness following this past
week’s hugely bullish overtones failing to propel the index
meaningfully higher.
The S&P cash is a bit more difficult to figure out at this
juncture. As we can see, the index has clearly found support at a
level near the 50% mark of the huge green candlestick from April 18
(remember that day?). The S&P cash has been able to generate
rallies quite effortlessly the past few weeks to propel it higher of
the 1203 “make or break” level. However, as can be seen by
Friday’s tail up, the index closed well off the highs of the day and
has failed to penetrate the resistance created by the extremely
bearish formation on June 13th. At present, it is difficult to
ascertain how significant last week’s and particularly yesterday’s
trading action was. Although my gut tells me to look for weakness when
I see a late day fade and a big tail up, Mondays are usually bullish
and once again the news presented by the Wall Street spin doctors
should grab the headlines and jolt the futures one direction or
another.Â
Lots of stocks in the healthcare and managed care sectors look ready
to come down from their historically high valuations following the
end-of-quarter shenanigans. Take a look at (THC)
and others in this group for potential shorts. Our recommendations
from June 22nd scored a homerun, with (CAH)
falling precipitously. CAH dropped nearly 12% from our short call. (LNCR)
also provided an excellent trade, while THC only gave us a point or
so. (UNH)
has continued to go up along with (HCA)–watch
the two of these closely.
In addition, (IBM)
took a huge whack at the end of the day on Friday, and looks
vulnerable. As we have learned, IBM is viewed by the world as a safe
haven, an island of prosperity in a world of weakening technology
fundamentals. Any chink in IBM’s armor would probably be devastating,
but don’t count on it. Their public relations department is surely
hard at work generating a backlog of news releases that should serve
to get the analyst community in a supportive fervor should any
earnings raincloud appear to obstruct the sun.
Anyone who claims to be sure where the market is going next week is
either pulling our legs or guessing. We are truly in “wait and
see” mode.
Have a great weekend.
See you next week.
Goran
P.S. We have some great traders in
Traderswire
Interactive and on the message boards. I am very pleased to
see active discussions and original analysis take place. Remember,
being able to disagree on things is what makes us better at what we
do, as we need to dig deeper into our mind and talents to find
answers. Many of the greatest traders around bounce their ideas off
colleagues and even their 6 year old children (DaveL?). So let’s keep
the discussions alive and keep them coming. Let’s also strive to
keep them constructive and beneficial for all involved. It is
not necessary for everyone to agree with each other, but it is
essential that everyone respects one another’s points of view.
Remember, trading styles are like clothing or cars–there are hundreds
of types and models and only through “trying them on” and
test driving them can you find the one that’s right for you. It
doesn’t mean all the others are wrong or bad, it just means that they
aren’t suited for your risk tolerance and/or profit goals.Â