Paul, this is a long post, but I really look forward to getting your thoughts (and anyone else's)....
Looking at the 1990-2000 Naz log chart.....I am trying to figure out the reasons for the existence of this (above historical growth) channel...Possible reasons : (1) Switch from mainframe to PC environment (on large scale)-empowering the "masses" , (2) ExistenceGrowth of networking (the ultimate being the Internet), (3) Acceptance of technology by corporations as a cost-saver/competitive advantage (and not purely an expense item, 1st to get cut when times are tough), (4) the fall of communism/rise of freer markets (India, China, Russia, Latin America, etc). Other factors may include the wide-scale acceptance of J-I-T as standard practice in many industries, switch from manufacturing to service based economy (inventory-less in many industries).
It seems to me, in order for this channel to hold true going forward (which, I would think it will for the near-term....middle/longer-term, who knows?), (1) the dollar needs to remain the pre-eminent world currency...(I'm not saying that it can't come down here...in fact, it will short-term come back into balance)..but the Euro or Yen can not rise to challenge the dollar's use as the "ultimate" safe currency, the new "gold standard" if you will..(2) Despite current problems, OPEC needs to retain the "prisoners dilemma" scenario..(3) US needs to maintain its advantage as the "fairest" disclosure financial markest(I use that term lightly)...ie, a lot of internationals have their money here because of poor visibility/practices in their home markets...they do not have a real alternative), and, finally, (4) No major wars...etc...
I believe, for the near-term anyway (1-2 years), these conditions should hold, and therefore the channel should hold, and should be a fairly reliable indicator if the Naz is currently undervalued, overvalued.....also, it appears to me that it will be extremely difficult for the Naz to ever breech the "upper channel line" again- I believe that line is currently at 3300. The only way I could see occuring is if the Fed made a similar mistake/decision as was done in October 1998, and then, the real topper, Y2K liquidity increase....That scenario will likely not occur again, so I assume that the Naz turn almost immediately when hitting the upper trend line on any rally in the future...
Re: Lower trend line. This is where is gets a bit trickier from my perspective. Where will this bear ultimately flush out? Although I understand and accept the argument of "equal and opposite" reaction to the mania early this year....and that would perhaps argue for hitting the lower trend-line (1900), it also occurs to me that the only other time we did hit that lower trend line (in the last 10 years) was October 1998.....correct me if I'm wrong, but back then, it did appear that the world MIGHT go to hell....it did look like we were going to have a complete financial meltdown globally, and the world financial "system" was at huge risk. I don't see that possibly here, UNLESS Greenspan & co. get too restrictive (or better said, don't loosen quickly enough). But I see that as a small possibility.....At worst, it looks like we could near recession. But, it does not appear that world conditions are as drastic as 1998. I find it difficult to think the Fed will not be easing by next spring (March latest), and just going to neutral will give some steady to the market short-term (sure I expect the market will rally into 19th looking for a cut, and sell-off when it doesn't get it), but if current data continues so weak....Greenspan has proven to be a fairly moderate guy, and I don't expect him to NOT support rate cuts just to prove to everyone he is not so stock-market friendly...I don't think his axe-to-grind is that big...and the bubble burst has really done a lot of his work for him...So, the cuts either come in January or March, but either way, the market will anticipate, steady, and rebound as a result...
So, I am left with the conclusion of 2200 as the bottom. As you have indicated (and others) there is a lot of various support there...2200 would put us about 1/2 way between lower channel line and the mid-point, and that has proven to be a very good buying opportunity in the past...although, of course, we probably will go thru retesting, etc....It appears that only by breaking 2500 will we generate the proper fear levels, etc....to truly market a bottom.....Investor sentiment still seems to high; Despite the massive losses...however, I think a sharp move under 2500 would sky-rocket the VIX, put/call into October '98 type levels...Given my thesis that the economic consequences here are not as bad as 1998, then that reinforces the buying opportunity (in my mind)...
So, sorry for being so long-winded. I welcome any/all comments, including argument why 2200 will not hold; If 1900, then rally? Or, about thoughts about the reasons for the existence of the channel and will THEY hold?... |
