Market Outlook:
This is not a year in which I've expected any Big MO trend-following approaches to work particularly well and it surely hasn't. I became very bearish at the end of August for the the first half of September and I was very right in that regard. My speculation about October rests to an extent on several assumptions: one, that the market had it's swoon, broke below supports, and that anyone who wanted to sell after the fact (who disagreed with my view that the pre-Labor Day advance completed the short-to-intermediate term upside) had plenty of excuses to; that, two, the market will somehow manage a rally into the Elections, though clearly the fears of unfriendly tax or energy policies can be overwhelming if not handled responsibly; and three, money managers will use periods of weakness in September (and theoretically October, though historically when a September is hard down; October is more mundane if not simply up overall, depending whether you get a liquidation washout first, which is what we got on Friday), then scaling-into positions during periods of extreme duress, anticipating decent gains in months ahead.
On a personal note, I have to tell you that I came home Thursday evening on the verge of tears. I saw the Nasdaq Futures were lock limit down and I knew all about the Intel preannouncement. I told my wife we were going to lose a fortune tomorrow. She asked why. After I told her about Intel, she asked me if we owned any shares of INTC. I said No, but we own a lot of shares in the NDX and NSM, as well as many tech stocks. My wife told me that "we should buy more NDX (or QQQ) in the morning as some of the money coming out of Intel would go into other tech stocks in the NDX." I said "how can you say that, Intel is the Market." She said, "trust me, I don't know as much about the stock market as you, but Bill Clinton and Greenspan won't allow this market to fall hard before the election and I'm buying so you better too." Lucky for me I married a Poly. For those of you who are married or divorced, I know you are well aware of how a woman can make you or break you. Conversing with you guys here is a piece of cake.
The situation going into September had me hoping the market would bottom (techs did, at least many major ones), oh about halfway into the month; while the only factors I could see being more dire would be a continued rise in Oil and excessive strength in the Dollar Index, both of which did occur (partially as a result of Euro weakness), contributing to the (understandable) heaviness particularly in the large multinationals which derive so much of their revenues abroad.
There is an eventual upside to all this; and it stems from the same strong Dollar that while depressing earnings at this point in a slew of multinationals, does have a benefit for those that take an intermediate term view. That just happens to be why I suspect that, if there is a bullish argument, and if the caveats about Oil and the Dollar that, of course, accelerated the September decline, move closer to resolution, then the worst is mostly behind, and that is doubly so if they move into a capitulation phase as it did on Friday, and washout recent lows, eliminating hope, but in the process probably creating the least optimism, and therefore lowest prices, to be seen in the overall large swoon.
There has been a lot of criticism of Central Bank Intervention in the Currency Markets on Friday, along with Clinton releasing a limited supply of the Strategic Petroleum Reserves. The US stock market was headed for a big time route on Friday if the CB's and Clinton did not act. That qualified as a disaster IMO and the actions were legitimate. The purpose of these interventions are to break the short term trend and make the speculators rethink their positions over the weekend. The move by Clinton and the CB's on Friday was perfect timing in that regard. The danger, of course, is that it gives the strongest signal possible to the sharks of the currency markets that something has gone seriously wrong.
Generally speaking, scaling into extreme purges, such as just seen on Friday by money managers and Institutions, is a signal that the equity market is headed considerably higher by the end of this year. I suspect political determinations (not currency intervention alone) is going to reverse this pattern of a higher dollar and higher energy prices, creating one of the largest reversals seen in this entirely robust alternating year of shifts.
The major technology stocks need to report good results this quarter for the NDX to rise. Instead of an October massacre, we might get a pullback, followed by an upside gallop as shorts are run-in, technical levels are taken-out heading back up, and fresh money starts coming in, as gradually the seasonality should permit. I'm expecting money managers to conclude in October that there is no newly developing bearish case, and to jam this market through the overhead, as others have their eye fixed on the abyss. That would put those looking for the already-seen precipice worsening still, into an edifice praying for a drop that already occurred on a rotational basis, just as did the movements (and volatility) seen earlier this year.
This Market is groping to establish what may be yet-another of the infamous Fall lows, that actually becomes a hook to vacuum stocks from weak hands and put them into stronger institutional control. Don't sell here unless you are the nimblest of traders. You will live to regret it. |
