To All,
First, to forewarn - this is a long post so I apologize in advance. You probably are unfamiliar with me as I rarely post. The following are miscellaneous ramblings. I hope that someone here gleans something useful from these thoughts.
As a frequent lurker and very infrequent poster, I thank you all profusely for sharing your knowledge, experience and wisdom regarding the markets. I have learned much from many of you since having ponied up the buck and a quarter last month for the privilege to post on SI.
My aim is to continually strive to see the big picture - very difficult for me if I don't detach myself from all the noise bombarding each of us from so many sources. Sure, like many of you I have my favorite TA indicators and macro economic theories out of which I attempt to apply to some prediction about the movements of indices and individual stocks. Also, like many of you, at times I get caught up in the emotions of trading and am seduced by the noise. Usually, because my mojo is probably not as finely honed as most of yours, those are the times I often make unprofitable trading decisions.
In the interest of giving something back (however limited) to those of you who have enriched my knowledge of trading, here is my admittedly cynical sense of the big picture and how it may unfold in the markets over the next few weeks:
-First, most of us would probably agree that the market will do the most to confound the greatest number of people. I believe that the truly powerful market movers distribute when the lemmings accumulate and conversely, accumulate when the lemmings are selling out. (How profound- they buy low, sell high).
The real money in an aging bull market, logically, will make bears think that market distribution has either begun or is about to begin. Witness the market action over the past week for that message. They will, of course, attempt to convince the bulls that the accumulation cycle will continue indefinitely. After all, the liquidity pumped into the markets is limitless - fed by aging boomers, foreigners seeking safety, and Greenspan seeking a lifetime appointment - right?
-Well, let's see. Recent market action has some aggressive bears out there thinking THIS is the beginning of the BK -YES OUR TIME HAS FINALLY COME. Aggressive bulls think this is a buying opportunity,A MERE PIMPLE ON THE ASS OF THIS UNSTOPPABLE BULL - that the rebound we get on Monday morning will just continue unabated until the money runs out - which of course CANNOT happen. Cautious bears are saying that the BK hasn't been signalled yet, like it's going to bite each of us in the ass when it's ready to emerge. Cautious bulls say that the market needs to rest - that a 5-10% correction is necessary for the long term health of this bull market, and that as soon as we go down to ____(pick a number), we'll be off to the races again. Yes, before too long we will again sing the praises of Abby Joseph Cohen, and Battapaglia, and Acampora. I dare say that the vast majority of us believes at least one the above.
In my view, the market confounds with timing. If it's obvious that the BK is absolutely upon us, it probably isn't. If its clear that liquidity will drive us to new heights, valuations be damned, the money will stop flowing. If we are all convinced when each of our little black boxes and TA indicators absolutely agree that the bear market WILL begin tomorrow, it absolutely will not. Once we get that 5-10% pause that refreshes, it probably will be anything but refreshing.
All of the above notwithstanding, here is how I see the market unfolding in the next few weeks:
1) We get a pop on Monday morning ("See, it was a buying opportunity".) BUT ITS SHORT LIVED, so to explain why, the talking heads get worried about strong ECI numbers on Thursday, or the yield on the long bond getting close to 6%, or the Saudis & Venezuelans reiterating their ABSOLUTE commitment to higher oil prices, or maybe there emerges a rumor that Madeline Albright is polishing Clinton's knob.
2)Severe downdraft continues into mid week. Aggressive bears claim victory. Aggressive bulls are ready to throw in the towel. Cautious bulls are claiming that the bull will resume the following week because their downside target of _____ (pick a number) has been reached. All the cautious bears get their black box sell signal SIMULTANEOUSLY and are convinced that BK has begun - and they have all become aggressive bears. The long bond yield goes over 6%. The Japanese sell umpteen zillion dollars of our treasury paper because no one is taking their 27th economic stimulus package seriously, and they need liquidity right now. So even though the asset allocation programs will be switching money out of equities and into bonds, the 30 year bond yield stays high. All the talking heads believe that Greenspan's holy grail, the ECI indicator is going to come in real fugly on Thursday. Chicken Little is right - the sky is falling.
-But oh - surprise, surprise. The ECI number turns out not to be so fugly, the BOJ ceases selling U.S. treasuries as Rubin beats Sakakibara to within an inch of his life. Sec. Albright emphatically denies the knob polishing allegations. The long bond drops under 6%, and all the talking head TA bulls declare that the market is way oversold. Friday is May 1 and it is reported that 897 trillion dollars are now flowing BACK into equities and the S&P erases half of its cumulative losses over the last week on Friday alone. The aggressive bulls get off the canvas all claiming to have predicted the end of the correction (as soon as they can cover their shorts). The cautious bulls are oh so smug having correctly timed the whole thing. All of the bears (remember there were no cautious bears left after the black box sell signals) are unavailable for comment, as they are very busy first cleaning their soiled shorts, then covering them.
-The bull charges ahead to new highs - oh, maybe 1200 or so on the S&P, until the middle of May. Everyone is now a bull. The last unreconstructed bear has closed out his/her last OEX put. All is well on Wall & Broad - until the Albright/Clinton video tape is shown on Nightline, the yen collapses and Nikkei drops to 312, the long bond contract trades lock limit down for 12 consecutive trading days, and you can now buy a Sony big screen for $38. Congress begins impeachment hearings and by June 1, the SPX breaks support at 990.
AND THEN IT'S OFFICIAL - THE BULL MARKET IS OVER!!! (or not)
Best of luck to all.
Franco |
