This is It! Morning Market SnapShot for Thursday, August 05, 1999
1280 on the S&P 500 Index is the line drawn in the sand. It is the last swing low on the weekly chart. A decisive break of this low will trigger the “crash” scenarios we outlined in the July 30 column where we compared the present situation in the S&P to that of 1973, 1987 and to a lesser extent, 1998. When we say “crash”, we are not trying to ring the bell and say this is all that there will ever be, as most perma-bears have done for a number of years. We are traders, and as such, a crash means a serious pull back in the long running secular bull market since 1982. Yes, someday it will all end. It might be in a decade. It might be next Monday. The fact is that no one can predict the exact day, for when it looks the best, the market is always at its worse and vice versa. At the bottom in 1982, no one thought the market would ever get better and at the top in 1999, no one believed it would ever end. The bottom line is that the unexpected always happens and it always happens much too soon.
What we are interested in is market timing that is useful, and as a columnist, it is difficult to use words like “sell”, for the readers are inevitably not traders. They wish to hold for the long haul. They do not wish to be bothered by the minutiae of the market on a day to day basis. They wish to deal only in the big picture. As such, in this column, we did not harp about things like the fake breakout at the top (marked by the word “TRAP” in the chart below) when it happened on July 20. We do not sound alarms and save these things for our web site where we talk about every little wiggle and squiggle with traders that are constantly in and out of the market. Long-term players only wish to be notified of significant deterioration that could threaten an entire portfolio, and so in our July 30 column, we wrote to alert readers of impending trouble in the big picture. We cannot advocate taking action because it is a personal issue for each investor. Our comments are designed to assist individuals in their own assessment of the market. We can only use words like “be on alert” and so forth because of the mechanics of the market. Many times, a test of an important low will produce a new marginal low on volume which cleans out the last of the sellers and the market is on its way up again. Herein lies the eternal problem. Those who are in the market for the long-term only wish to time the market insofar as getting out ahead of big corrections, but unless one follows the market every single day, it is not possible to time it properly. Selling must be done when the market looks its best, right after a big reversal day when others are still confident. This takes experience and skill. Long-term investors tend to rely on signals such as the break of an important low or support level to sell, but so does everybody else. Selling when things look bad is instinctive to humans. It takes no skill or experience. It is a gut reaction to puke at the low when the market looks its worst. And if everybody sells on the break and there is no follow through, the market makes the bottom right there. This phenomenon is why so many investors, who wish to time the market on a “long-term” basis, find themselves selling at the panic low and then the market miraculously recovers and they find themselves out of a position. So far, this has proven to be the case every time as the market moves ever higher in the greatest bull market on Earth. However, there will come a day where the market begins to make lower lows and not recover but unless we time each transaction, no bell will miraculously ring to tell us that “This is It!” on the final high, will there? There is no point in being a market timer out to catch that elusive thing named “The Top”. We either follow the market at all times or resort to faith in fundamentals. This is why we cannot say the word “sell” at this juncture because selling on the break of an important low is an absolutely “last resort” technique best left to others. This is why we call it the quagmire. When it was the right time to sell, right after the “trap”, it was too soon for most since there was no “evidence” of weakness, no bad news to form a firm conviction unless one is a seasoned chartist. But when it feels compelling on a break, with the financial media blasting out bad news, it is too late, and what if it makes a panic low right there? We feel damned either way. Just ask anyone who owns an Internet stock at the moment.
On the daily chart, the line in the sand is drawn at 1280. VIX is climbing as fear replaces complacency. New NYSE 52-week lows continue to swamp new highs by almost 5 to 1. The 10-day moving average of the high/low net differential, pioneered by Justin Mamis, has broken through the levels seen at the late May/early June lows on the S&P. The situation is critical.
The CBOE Internet Index broke the June low today, but volume was not heavy. The action of the next few days will tell us whether a low can be made here on the test.
The intermarket chart is deteriorating fast, as the Dollar continues to be weak, putting pressure on interest rates. Now, with the CRB Index breaking to the upside after a long consolidation, the last piece of the puzzle is screaming, “Look at me!” The S&P hangs on a thread, right at the May/June low. With the employment number due out on Friday morning, it will be the catalyst that moves the market. This is a make or break week. No doubt about it.
Charts specific to these comments have been posted to
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