Elizabeth and all - Technical analysis is a form of trend analysis, which in the case of stocks is subject to a high degree of error when predictions are made for more than a few days into the future. While I have little faith in TA, I do see the possibility of a major correction, and not because of Greenspan or politicians, which everyone apparently delights in blaming for any catastrophe.
The continuing high price of crude oil coupled with rapidly increasing salaries for skilled personnel, and an actual shortage of needed skills can do the job. The price of oil is embedded in almost everything that is manufactured, but it is a smaller component of manufacturing costs than it was during the OPEC inspired crisis of the 1970's. It draws away from consumer spending, however, because consumers now have to spend more on gasoline and heating costs. Labor costs do not yet look inflationary, but that's because a very high percentage of labor costs are for unskilled, service type jobs. When you get to the thousands of engineering and other skills, many of which require several years training or an advanced college degree, that's where the inflation is now, and it will start to show up in higher prices perhaps in the next two or three months.
The Federal Reserve doesn't like to make big decisions that could be controversial. Their gradual raising of interest rates, however, could be at least part of the medicine needed to prevent an all out cost push inflation. One thing they haven't done is adjust margin rates, which in my view would be a far better way to reduce downside risk on stocks and prevent catastrophic corrections. Instead, they're letting individual brokers determine marginability on a stock by stock basis. So you get the unusual situation where QUALCOMM, whose earnings are increasing at better than 100%, is considered by one investment firm as not worthy of margins, whereas the firm still allows its customers to margin their Amazon.com shares, even though AMZN has never made money and has just issued a second round of convertible debt, further diluting the existing shares.
When a really risky stock with little or no intrinsic value collapses, it can bring down even quality high growth stocks WITH EARNINGS, such as QCOM and SNDK. If you ask me, the kinds of decisions we're seeing both in government and in the upper strata of the investment world are just nuts. |
