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Strategies & Market Trends : Systems, Strategies and Resources for Trading Futures -- Ignore unavailable to you. Want to Upgrade?

To: GROUND ZERO™ who wrote (36576)	10/14/1999 7:44:00 AM
From: Tom Trader	Read Replies (3) \| Respond to of 44573

Morning GZ -- you are a cheery soul today for sure! I looked at the link that you provided -- and assuming that the corelation holds, are you saying that we are already in crash mode as of now?? I do agree with you that the market is vulnerable and 7.25% in the long bond would be its death knell -- in fact, given where we are with valuations, I suspect a lot less than that rate on the long bond would do it. I also agree that rates are likely to move higher -- the sentiment that one sees at tops and bottoms is not there for a bottom to be in place. Do you recall when rates bottomed during the last cycle, there was not a bear to be found -- I think the bullish consensus reached the high 90s in percentage terms -- a quite extraordinary level. What is missing in this decline in the stock market is the absence of capitulation on the part of the investor/trader -- that has been the hall-mark of good bottoms in the past. Given that, I suspect that rallies will fail and declines will become more pronounced irrespective of whether we see a crash occur or not. One of the more remarkable statements that I read was by Paul Volcker who, a few weeks (months?) ago, said something to the effect that the world economy is heavily dependent on the US economy for its continued prosperity and the US economy is substantially dependant on the continued health of the stock market -- and the US stock market, as measured by the indices, is largely dependant on 50 stocks, half of which don't make any money or make little money. I think that statement by Volcker pretty much sums up how vulnerable the world economies would be to any large decline in the US markets. As I talk to people, some of whom are really fairly sophisticated about the markets, the thing that comes across is the confidence that people have that the markets will always recover -- and that any set-back will be temporary. I suspect that given this, sooner or later, there will be the type of bear market that will cause an entire generation of investors to feel that the markets are the last place to invest one's funds. It happened in the late 20s and then again, in a less dramatic though very painful way, in 73-74. You will recall that after the latter bear market, there were people, including stock brokers, who felt for several years that stocks were a bad bet. So much so that when the bull began in August 82, the general feeling was that this was just a temporary rally -- even Granville was shorting stocks at that time and was totally bearish for a long time. People just did not believe that stocks were where one should be -- real estate was the hot ticket at the time. Having said this, I must also say that I don't think that the pieces are quite in place for a huge decline -- at least one of crash proportions. I am in cash, for the most part, and have been for a while -- taking trading positions from time to time. There is usually an unexpected trigger that causes large declines -- and until that occurs, I suspect that although we may see continued declines it will be rather controlled. Not that it offers any solace, because the worst type of bear markets are those grinding slow declines -- not as dramatic as the crash but probably a lot more painful in many ways -- kind of a death by a thousand cuts.