A Day In The Life
By Jeff Cooper
November 11, 2000 11:00 AM EST
I read the news today oh boy
About a lucky man who made the grade
And though the news was rather sad
Well I just had to laugh
I saw the photograph.
He blew his mind out in a car
He didn't notice that the lights had changed
A crowd of people stood and stared
They'd seen his face before
Nobody was really sure
If he was from the House of Lords.
I saw a film today oh boy
The English Army had just won the war
A crowd of people turned away
But I just had to look
Having read the book.
I'd love to turn you on.
Woke up, fell out of bed,
Dragged a comb across my head
Found my way downstairs and drank a cup,
And looking up I noticed I was late.
Found my coat and grabbed my hat
Made the bus in seconds flat
Found my way upstairs and had a smoke,
Somebody spoke and I went into a dream
Ah-ah-ah-ah
Ah-ah-ah-ah-ah-ah
Ah-ah-ah-ah
Ah-ah-ah-ah-ah-ah
I read the news today oh boy
Four thousand holes in Blackburn, Lancashire
And though the holes were rather small
They had to count them all
Now they know how many holes it takes
To fill the Albert Hall.
I'd love to turn you on
From "A Day in the Life"
Written by John Lennon and Paul McCartney
Performed by the Beatles
Hail, hail, the Chief: Cash is King. I'd love to turn you on and blow bullish smoke your way, but there are enough smoke and mirrors going around. I'll leave that to the cheerleaders like Tom, Abby, and Joe.
At the lows in May, they were champing at the bit for the New Era stocks. Many market participants did not see the light change and blew out chasing pie-in-the-sky valuations. These cheerleaders woke up after the Nasdaq fell out of bed, and they put on their valuation-strategist coats. The penguins just moved to another iceberg.
This is because what happens in the later stages of bull market cycles is that mutual funds' and money managers' only priority becomes to recycle and reinvest all dollars, whether new or from sold-out positions, back into equities. Regardless of any conditions or valuations, the idea of market timing becomes a laughing stock. Because it has been difficult to time the bus along the way, they simply stay on the bus. "Only after
a true capitulation
can the potential
for a genuine
and sustained
rally phase
play out."
Regardless of the heavy fog of slower earnings or the snowed-under charts, cash becomes a dirty word in a bull market. That is one of the reasons that we have witnessed so many Bungees this year, as the market makes miracle reversals from the brink. The "realization" that the market always bounces back is embedded hook, line, and sinker in the masses' gills over a generation. The institutions built an industry to do their bidding, and their mandate became exposure to equities. No matter what! Cash became a dirty word.
Well, fantasies may work in films, and happy endings are aplenty in the movies. But in the real world, the investment war is won and fought one battle at a time.
On Friday, the Nasdaq made a new closing low below the Oct. 13 capitulation open and the Oct. 18 test. The point of recognition is setting in. The denial phase of the bear market is now turning into a concern phase, as the Nasdaq closed below what had been greeted by the crowd and herd as another October low. But when the scales come off their eyes, I wonder if the Emperor will have any underwear left. It depends. In the meantime, hail the Chief: Cash is King, until proven otherwise. Just ask million-dollar Survivor Richard Hatch, who gave a broker $350,000 and told him to be aggressive. The 350 is now 258.
The hallmark of a bear market is for investors and letter writers at large to greet every low as another great opportunity. The crowd stands and stares at the accident, and then bleeds more money into the bargains and the values. Well, if overvaluations don't matter in a rip-snortin' bull — which they don't — then what makes you think more-reasonable valuations make a difference in a runaway bear?
It is not my purpose to beat a dead horse or to be overly negative. I know many of you are enjoying the bear side immensely. My desire is simply to make sure that those of you who play only from the long side keep your powder dry. Be careful about catching falling daggers. Again, it is not a matter of being negative, but having read the book, having been through this before, I just have to look at the facts. Something different is going on. Those who keep calling for the market to deliver more than just trading lows and oversold rallies don't know what they're dealing with here. Something different is going on: Money makes the mare go — although equity funds experienced strong inflows in recent weeks, the market continues lower. It is speaking.
When we took out the May lows in October, a Time Trend Turn was triggered — the first in 20 years. Subsequently, as I suspected we would, we had a two- to three-period knee-jerk rally on the weekly charts. But Friday's close at 3,028.99 is the first close below the May low of 3,042.65, and appears to confirm the Time Trend Turn. A bona fide confirmation will occur on any trade below the Oct. 18 lows of 3,026.11.
Just as it appeared that the market had escaped the Hounds of October, the three weekly bullish tails of October have now been offset with this week's close below the 3,245 midpoint. (3,245 is the midpoint on the Nasdaq between the important 1998 lows and the important March 2000 high.) This week's close at 3,028.99 is substantially below the pivot, and — as money-manager and technician friend Dave Reif, CMT (certified market technician), suggests — "The yearly-chart target at 2,192 now looms large."
Before you discount his idea as outrageous, let's look at the fearful symmetry. The move down from the March high at 5,133 to the May low at 3,042 equals 2,091 points. A measured move from the July high at 4,298 gives 2,198. Markets seek equilibrium. It just got way overblown on the upside, and the inverse is now playing out. God geometrizes.
Friday's low was the first low-tick, triple-digit loss that I can remember for a Friday in many, many years. For a decade, the Powers That Be have come to the rescue of the market late on Fridays, in order to prevent a Meltdown Monday. The remembrance of Friday, Oct. 16, 1987, is forever etched on the big elephants' memory and on the Working Group's memory, as well.
Curiously, on that Friday in 1987, the market closed on an important trend line and moving average, but gapped down through them on Monday's open on its way to a 508-point loss. There was no opportunity for the mutual-fund sellers to wait and see if the support would hold. Support in bear markets is intangible, as is resistance in bull markets.
The Nasdaq is at another such point, and Monday is the anniversary of the 1929 crash low.
But before you curl up in a fetal position, remember that follow-through is key. The good news is that only after a true capitulation can the potential for a genuine and sustained rally phase play out.
Of course, the bullish side of the equation is that if you examine prior important lows, you will notice that oversold bottoms are first followed by a rally for a period of time, and then another decline to a slightly lower closing low occurs, before the real surge begins. There is always the possibility that this is the case now.
As you can see, this occurred in 1998 and 1999, and at the May lows in 2000 — not to mention the fact that after the October 1987 debacle and rebound, a slightly lower closing low occurred on Dec. 3, 1987.
I thought I'd seen everything in the markets until this year rolled around. We had the Y2K celebration blow-off, the Internet mania, the human-genome-project mania, the Fed tightening, the economy slowing, the accelerated volatility wired with the ECNs (the electronic confusion networks), etc., etc. But the markets are down now for a good reason: The earnings just aren't there, as exemplified by Dell Computer's (DELL) slash in its projection of next year's revenue growth from 30% to only 20%.
The market needed this election quagmire like another hole in the head. Apparently, the Electoral College study course offers a major in chaos theory — you know, where a butterfly's wings in China cause a change of weather in California. This time, it's a butterfly ballot in Florida, and it's causing a tempest in Washington. Now we know how many punch holes it takes to fill Palm Beach.
As the Democrats and Republicans spit bullets at each other, the fear is not so much of the disenfranchisement of the sacred right and obligation to vote, as it is of a delegitimized, non-mandated presidency. It's a laughing stock (pun intended). Even Fidel got into the act: Being the good Florida neighbor that he is, he offered to send observers to oversee any new voting, should it be held, suggesting that someone needs to watch over our shoulder. ¡I don't teenk so!
I'd love to turn you on to the bull case, but all the noise is distracting and dulling sentiment and perception. And with the markets, perception is reality. So find your way upstairs and have a smoke. Until the air clears, there's little urgency for those predisposed to buy to take their wallets off their hips. Until the photograph morphs into something more than lower highs and lower lows on the monthly chart, the price news will remain conspicuously poor, oversold rallies notwithstanding.
Of course, the Fed meets next week, and with the presidency hanging in the balance, Uncle Al may just threaten to throw an interest-rate cut into the potboiler, constitutional crisis that it is. And the market loves to turn on a crisis. But once you get the lawyers involved, the outcome is a conundrum wrapped in an enigma. Ah-ah-ah-ah.
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Jeff Cooper has been a professional equities trader since 1982 and is the author of three best-selling books on trading. |
