Angel Flying Too Close To The Ground
If
you had not fallen
then I would not have found you
Angel flying too close to the ground
I patched up your broken wing and hung around for a while
trying to keep your spirits up and your fever down
So leave me if you need to, I will still remember
Angel flying too close to the ground
—Willie
Nelson, Angel Flying too Close to the Ground
I haven’t
been around as long as some guys, but this Wayne Angell thing might
qualify as the single most
absurd and reprehensible thing I’ve ever witnessed occur
in the equity markets. This, my friends, is not an easy award to walk
away with considering the
daily absurdity we are subjected to.
In Greenspan’s testimony to Congress
today, the Fed Chairman all but obliterated
the hopes of an inter-meeting interest rate cut. Wayne Angell has completely
destroyed whatever credibility he may have had and Bear Stearns Co.
has probably committed a white collar crime in front of 260 million
witnesses without getting
read its rights. Period. End of story. Let’s move on.
Let’s take a look at where the Nasdaq
Composite and Dow Jones Industrials stand:
As we can see by examining this weekly
chart of the Nasdaq Composite, the “bottom
pickers” may still have a little wait yet. Since Sept 1, 2000,
(Remember? The day the
professionals were returning from their August vacations
and Maria B. told us they were going to “buy up everything in
sight?”), the Nasdaq
Composite has been following a steep staircase decline into
the cellar. As is typical with bear markets, we have experienced some
very sharp rallies that
have created a lot of optimism about the true bottom being
put in and a rebirth of a new bull market. It is clear that this was
just a lot of hot air
intended to suck in unsuspecting traders who have never observed
or witnessed a bear market…traders who were still intoxicated with
the easy gains of the prior 18 months. Unfortunately, these momentum
traders have created
multiple levels of overhead resistance in the Nasdaq Composite
as the rally chasers have been left holding the bag continually. This
overhead resistance will surely serve as too great a burden to overcome
in the short to
intermediate term and will probably condemn the index to new lows
followed by a period (months) of sideways consolidation. As frustrating
as it may seem when it
happens, it will be the most important thing for the Nasdaq
to do in order to clear the deck for a potential move up in the future.
With the Nikkei hitting a new 15-year
low today, we can only hope the Nasdaq will
not follow this troubled index’s lead. The American investor needs
instant gratification.
Let us now turn our attention over to
the 1-3 letter world:
The weekly chart of the Dow looks a
bit more disturbing here. In the short term, it is clear we are bouncing within
the regression lines of a wedge formation
(some have identified a diamond formation if you go a little further
back and draw the lines). However, looking at a monthly chart and going
back a decade or so, we may be on the verge of entering a sustained
downtrend in this index.
The bulls and bears could debate for hours about why
we are going higher or why we are going lower. I’m basing my opinion
solely on what I see on
the charts without regard for underlying fundamentals or
macroeconomics.
In my opinion, it would be prudent to
take profits or reduce exposure on Dow stocks at this juncture. With key
leadership groups like the banks and financials
continuing to get slammed the bullish argument for this index’s further
appreciation seems very weak, at best.
At some point soon, and it won’t be
long, the average American investor will realize
that there is no such thing as a “safe haven” stock or sector. The
only safe haven that
exists is cash money…not tobacco stocks, not healthcare
stocks, and certainly not retailing stocks.
Which brings me to my next point…
Many have pointed out that the
Retailing sector is a key indicator of the current
and future state of the economy. Accepting this argument as true, let’s
see what the S&P 500 Retailing Index is showing us:
As we can clearly see in a daily chart
above, the retailing index has had an enormous run on the premise of a second
half 2001 recovery and an increasingly
favorable economic environment.
This is where the
rubber meets the road.
The chart shows us a complex topping
pattern in which multiple bearish bars are telegraphing the future. With a
failure today on a rally up to the declining
20 DMA as well as a breakdown below the regression line which has been
fostering the index’s advance since October, 2000, (not shown for clarity
purposes, draw the line mentally or print it out and draw it) the S&P 500
retailing index now
appears to have confirmed a change in trend.
Interestingly, Goldman Sachs came out
pre-market and upgraded Federated Dept. Stores (FD) after their earnings
disaster yesterday (or to the layperson, their
earnings triumph as reported on bubblevision) and May Department Stores.
Interestingly, May Department Stores has rallied over 100% in the past
four months and insiders have sold millions of shares during that move
up. Fascinating how
Goldman Sachs found such a low-risk price point to pound the
table on the stock and tell us to buy like hell. If anyone remembers
when I called the top on
the pharmaceutical stocks, Goldman Sachs also came out
on Merck Pharmaceutical (MRK) with a “recommended list — strong buy”
when it was
$95. MRK went up a point or so on the news and promptly sold off over
$20 over the course of the
next six weeks. Thank you for yet another glowing
“buy” recommendation, Goldman Sachs, but I can smell you way before
you arrive.
As such, I believe in the coming weeks
a combination of the following will occur to adversely affect the retailers:
a) The realization that Uncle Al will
not be able to stem the recessionary tide
as mounting layoffs and continued talk of “lack of visibility”
continue to
mount each week. As such, it is becoming clearer that the current state
of the economy and the
mindset of the average consumer is worse than once thought.
In addition, the current historically high levels of household and
personal debt will only be
amplified by…
b) The average American looking at his
mutual fund statement and 401k at the end of February. For those of you who
haven’t been keeping score at home, the
most widely held stocks in the United States, such as Cisco Systems,
Lucent Technologies, MCI
Worldcom, Sun Microsystems and Oracle have either made
new 52-week lows or are darn close. This evaporation of the wealth
effect will probably not
prompt the masses to buy and buy often as they have been
over the past few years. With personal savings levels at historical
lows and credit card debt
at all-time highs, it is clear that a major problem is
developing here. A problem that all of Greenspan’s horses and all Greenspan’s
men won’t be able to put together again.
Have a good night.
Goran
Â