Rick Ackerman
Monday, August 5, 2002
How to Spot a Fool
Stock Market Trading Notes:
Yesterday's cart-to-horse metaphor should have been, Horse to Cart: "Giddap!" but I hope the point was nonetheless clear -- that investors appear to be hoping for a stock-market rally to jump-start the economy rather than the other way around. It is after all a lot easier to pray for another explosive surge in share prices from out of the blue than to come up with a few solid reasons why we should expect a rebound in corporate profits any time soon.
More immediately, it is hardly encouraging that hopefulness availed Wall Street so little on Friday, when the averages sank from the opening bell. I got a palpable sense of the market's weakness late in the session attempting to bottom-fish the E-minis. I did so twice after decent "buy" signals within minutes, only to be stopped out for small change both times. The Dow did manage to finish 30% off its intraday lows, but that was pretty feeble when you consider that Friday is the perfect day for Da Boyz to promote a dandy short-squeeze.
If that's the best the Smart Money can do, we're probably in for more weakness this week. Yes, I'd said on Friday that the DJIA could fall another 400-500 points and still look healthy, given the 1200-point rally it would be correcting. But even though this bear rally is long overdue and sorely needed, I must admit to being a tad uncomfortable with the swollen consensus, even among bears, that it will run at least 'til summer's end.
In a purely technical sense, and in an ordinary bear market, they'd probably be right. But the state of the economy is so very desperate now that, on fundamentals alone, the Industrial Average should be plummeting to my 6985 target with only a day or two's pause. Instead, it has been teasing investors like some pox-infested streetwalker with her skirt hiked up to her garter belt.
Whatever happens, don't buy into the red herring about corporate corruption being the cause of the market's weakness. In fact, all of the covering up and creative accounting is merely symptomatic of the much more crucial problem of dismal corporate profits. The strongest evidence we have that corruption is not the main problem is that politicians have focused so obsessively on it. Another piece of folksy wisdom you can discard is that the dollar has come down to "reasonable" levels. The dollar is on its way to hell, for sure, and all the central banks on earth acting in concert cannot change that.
One more thing: Anyone who disses gold is a fool.
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