Deep Thoughts…and Charts ‘R’ Us
As I was outlining my
commentary for today, I realized that the economic numbers and trends
that I was intending to analyze really don’t matter. Nobody cares that consumer
credit rose $13.9 billion in April, or that revolving debt (credit cards, etc.)
led the advance with a 17% surge. Nobody cares that the NAPM services index has
been making new all-time lows for the past two months, while the manufacturing
index having recorded its tenth consecutive month of recessionary data.Â
Nobody
cares that the weekly jobless claims four week average has reached the highest
levels in the last 15 years. Nobody cares that the housing market is beginning
to show considerable signs of weakening. Nobody cares about the downward
revisions to productivity or the abysmal capacity utilization figures. I can go
on and on, but the truth remains—nobody cares.Â
Why doesn’t the market care?
After all, as Peter Lynch once proclaimed, don’t earnings drive the market? If
earnings and fundamentals and reality don’t drive the market, what does? The
answer is within all of us. The answer is: Hope. Hope is driving this market.
Human nature is quite good at dispelling reality, when it is clearly painful, in
favor of a purely hypothetical scenario that doesn’t exist, in fact, but rather,
is a hope-induced apparition.Â
Just as certain folks have refused to refer to the
Nasdaq move to 5000+ as a bubble and this past year a bear market (calling this
“a correction” instead) and refuse to acknowledge the reality that the
United States is already in a recession, referring to it instead as “the
slowdown,” they will probably refer to (in my opinion) the coming crash in
the S&P 500 and Dow as “the incident.”Â
This past week, while on
Dr. J’s “Traders” show, I was speaking to one of the guests during a
commercial break. When I suggested that the S&P 500 and Nasdaq 100 would
revisit and exceed the March/April lows later this year, he looked at me as if I
was an alien…as if I had morphed into some strange extraterrestrial being. My
friends, is it that radical a notion to suggest that perhaps the good ‘ole
bottom ain’t in yet? Does it wreak havoc with logic to forecast, at the very
least, a retest of the lows we experienced only two months ago?Â
Other than
Stephen Roach at Morgan Stanley, virtually all market strategists at the major
houses forecast at least 10% appreciation in the S&P 500 by the end of this
year. This certainly wouldn’t fall outside the realm of possibility. Since the
current 28 price/earnings ratio doesn’t raise any eyebrows or concerns about
valuations on Wall Street, why should a 30 or 35 PE? This is the paradox we
face. It is clear that we are rapidly approaching a multi-year major market top
in the Dow and S&P, but when will it happen?
Many will suggest that you don’t need to know
where the market is headed in order to be a successful trader. I agree. But I
agree only on the pretense that we actually know where we are in the first
place. Without knowing where you are, you certainly cannot ascertain or forecast
where you are going. As a trader who manages money, it is vital for me to
strategize based on where I forecast the market to be two and 12 months down the
road. If this type of information doesn’t suit your trading style, you may be
better served not wasting your time reading me.
This is a terrifically frustrating time to trade because the markets are failing
to follow through in either direction. This, my dear friends, is the trademark
activity of a secular bear market–little mini bull markets followed by mini
bears, mixed up with a lot of indecision and lack of follow-through. Certainly,
this is the first bear market I have ever traded through in my professional
career. Reading and learning about them certainly doesn’t feel the same as
actually living through one, so rest assured that we are all being educated, as
time continues to march on.Â
As unclear and uncertain as things may seem at the
present time, one thing is painfully evident: This supreme truth is that we
are poised at the threshold of history. The financial markets in the United
States are at their most historically significant juncture since 1929. As the
Wall Street spin machine continues to solicit buyers and bubble-vision continues
to conjure up a utopia in which the Federal Reserve can ensure sustained
prosperity for the entire planet by simply manipulating interest rates and money
supply, a very sad quote from George Soros comes to mind:
“Economic history is a never-ending series of episodes based on falsehoods
and lies, not truths. It represents the path to big money. The object is to
recognize the trend whose premise is false, ride that trend, and step off before
it is discredited.”
When will it be time to step off? That will be my job to figure out. Now, it’s
time for Charts “R” Us!
In closing, I apologize for my sporadic postings the past few weeks, as I have
been traveling and attending to other business. In addition, I have been
suffering from a bit of “burn-out,” as those of you who have been reading me may
have noticed. Since joining TradingMarkets last December, I have really given
100% of my energy to trading and analyzing the market and things have been very
profitable for us. Please understand that there may be times I need to recharge
my batteries and reinfuse enthusiasm into my trading and analysis. Hang on gang,
the best is yet to come.
Goran