May 10, 2004
If I could only have traded my mouth over the weekend. In my last missive, I rolled out the litany of technical horrors that were screaming to me that the market is stinking up the joint and even its neighbor's joint. However, I did not get back to being a 100% bear in anticipation of a massive global sell-off to start this week. I was expecting more of the same slow grind we have been suffering all year. I was even thinking we would bounce today.
Instead, we face nothing but delusion, disappointment, and bewilderment. "But earnings were good"! all the stood-up bulls cry out. Instead, the market has once again suckered in the beginning-of-the-year money and has simply chopped it up on two classic head-fake moves in January and the bounce off the March lows. Very soon, the market has got to bounce again, if only because the sellers have finally exhausted every ounce of panic. I will reiterate, treat every rally as a gift to get out of the way of this sinking locomotive. The length of rallies to date have been short and bitter. Eventually, we should get a more lasting rally since the market is likely not through suckering in more new money (whatever fresh cash is still left out there).
And why the panic anyway? I have gone through the market's main fears, but all I keep hearing the pundits drone on about is the fear of interest rates. Give it a rest! The market has known about, even feared, higher interest rates for many months now! All it will take is for the Fed to FINALLY give us a pinprick of a rate hike and then for the world NOT to end shortly thereafter, for buyers to finally get some kind of legitimate excuse to start buying with drunken vigor again. Instead, the main fear burdening the market is the collection of all that is bad in the backdrop and the vacuum of any imminent and clear positive catalysts. But I suspect that when the market finally finds its excuse, the subsequent rally should be swift and sharp, and it will make you wish all over again that you never sold a single share in the downdraft. Just do not rush up and buy at the tops again.
Finally, as a follow-up to my earlier technical observations, note VERY WELL that we are reaching an important change in character for the long-term. For the first time since the rally began, a lot of the major indices are struggling with their 200 daily moving averages (in price). Unlike the 50DMA, the 200DMA is considered critical to interpreting the long-term direction and trend. As index after index begins the breakdown below this critical barrier, you can bet more and more on the bear. The following indices have now either crossed or touched (within a few points) the 200DMA for the FIRST time since the bear rally began over a year ago: NASDAQ (a few days ago), S&P 500 (just barely missed by a few points), Dow Jones Industrial, the Dollar (first clear close ABOVE the 200DMA), Bank Index (Friday), S&P Smallcap (kissed the line perfectly), Dow Jones Transportation (Dow Theory is pretty much confirming the seriousness of this correction), Utility Index. I thin it is quite ominous to see so many major indicators lose the battle with the 200DMA pretty much at the same time…
Be careful out there!