Hi Lee, I tend to agree with your assessment. I thought you'd find this excerpt from Jeff Cooper's (TradingMarkets) weekend review interesting, especially the last sentence.
"Let's take a look at the health of the current market. Over the last three years, off the lows of three valleys, three mountainous rallies erupted. Often, bull markets show three drives into a topping area.
The first rally occurred in 1997, off the Asian currency crisis and Russian debt default. As the Fed pumped in liquidity, the market climbed a wall of worry.
The next mountain sprung out of the valley trod by the Long Term Capital Management hedge fund fiasco. Again, the Fed pumped in liquidity -- and again, the market climbed another wall of worry.
The third peak in equity prices mushroomed off a valley of fear related to Y2K.
Each of these concerns saw stock prices flourish as the floodgates of liquidity were pried open and PEs grew higher and higher. The difference in the current market break and attempted recovery is that there is no external event driving the price compression. The current crack in speculation shows the Fed leaning against the market.
Moreover, despite fabulous earnings, equity prices tumbled down the other side of the mountain. With each descent over the least few years, market participants grew more and more emboldened by the successively higher peaks. The ocean of liquidity let loose by the Fed during prior episodes has served to dampen fears and liquefy complacency. Now each successive decline instills hope that beyond the Valley of the Bear lies another, yet higher mountain. All of this actually makes it more and more difficult for the Fed to manage a soft landing.
Volatility has fried out big capital and small capital alike. This has created lighter and lighter volume. Volume is a measure of confidence, but with players dazed and confused, the fuel needed for successful, lasting breakouts and persistent follow-through rallies looks dubious.
That's why they're called bear markets. Over time, they squeeze participants into submission by going nowhere quickly. Intermittent rallies will occur. The bull kept players guessing for years. The bear doesn't like labels, either.
According to Sun Tzu, the art of war is based on deception, the creation of false appearances to mystify and delude the enemy, and the indirect approach. In strong uptrends, you want to look to buy when the market crouches and looks its worst. In strong downtrends, you want to look to short when the market stands on its toes and looks its best." |
