A reader asked the following;
Please let us know your long term view on the Market. Do you think this rally is a fake, or does it have legs? It is hard to believe that FED is done. But looks like the market things that it is the end.
My thought process here may be difficult to feel good about. My original thought for 2006 was down a little. I still think that. Part of the assumption included the Fed stopping, whether I guessed correctly as to when or not, the Fed was going to stop this year. Perhaps today was it or not. Either argument is easy to build but the last 25 beeps isn't thing, I would focus on a few hundred beeps in between the first one and the last one as doing most of the fill in the blank.
My reasons for expecting down a little include length of the current economic cycle, length of the current stock market cycle, slowing earnings, rising rates, the likelihood the Fed goes too far, a weak dollar (which has its own long list of causes), year two of the presidential cycle and there may be one or two more. These are valid concerns. The bullish case is also valid.
All of these things, bullish and bearish, are all in the realm of normal market action. No matter what I think I have to manage to what is going on and not make too large a bet to my clients' detriment on any on outcome.
It is not clear to me that anything is truly new. Who didn't know the Fed would stop this year? All of the things that make you bullish or bearish are probably the same now as they were three hours ago.
I have no reason to change my expectations for the year. Those expectations could be wrong but I don't do my job with my head in the sand. As I have been writing I have raised a little bit of cash, not a lot, and I am capturing most of the effect which I am pleased with for now.
A couple of weeks ago Bill McLaren laid out a crash scenario that included a rally to a lower high. There are a lot of moving parts in Bill's process so something could have changed with this but I have not forgotten about the comment.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
4 comments:
We will definitely see what Bill Mc Laren has to say about this one. Trying to decipher his somewhat esoteric however so true explanations.
Now, is this going to last?
I mean, the rally!
One thing for sure, on a day basis, an SPX500 (well drawn) chart shows a nice consolidation pattern that still has to give up a bit.
Now, will that "bit" end up into a stampede?
This is not really a fairish scenario.
What people have to understand, is that we are at the top of a major reversal like in 2000.
Unlike a crash, a reversal is a longer process.
It is smoother and not as jolty.
Reversal have, as well, a wider range of action than the range in which it was dwelling before.
Let's explain that:
Market moves within ranges and sub-ranges.
Usually, the range in which the market is moving is pretty steady.
However, when the market turns, the range widens.
It usually moves from a sub-range to the next wider range.
Like someone living in a 10 rooms' house, using only one room. Then one day, he decides to open one or two rooms extra because he needs more space to live in. And so on.
This is what's happening.
This is a cycle process.
Now, what is important to consider is the following:
Greenspan had almost choked the poor market until he left.
Greenspan market was in a tiny range within a bigger range.
Remember the daily moves in 2000?
With Greenspan, they almost died out!
However, the range that the 2000 moves had set is still there.
Indeed, the man who has that big 10 room's house has built it one room at a time.
So it was the tiny "Greenspan" range within the "2000" range.
Well!
Good news! Big Ben is a trader's dream.
Since the past two months, the range in which the market moves has had a 60% increase. Yep!
Benny is taking us back to the good old days!
So now, we have a market that moves on the macro side within the 2000 range and, on the micro side, within a "pumped up" Greenspan's range.
- What do we say?
- Thank you!
- Thank you who?
- Thank you uncle Benny.
So bigger daily moves within a broader area.
We are back in 2000!
So do not expect the moves we have now to be the same than the one we had two months ago.
Now, (you can quit up to this point, but the rest is not bad either, I hope!):
If you look at a weekly chart at the top of 2000, you will get a better feeling.
If you look closely, the market went down for 8 weeks in a row.
Then rallied five weeks before it went down again for the long bear campaign we know.
Althouh the cycle in 2000 is not the same one that we are in now, it is very possible for this current cycle to go down for another two weeks. Statistically.
The first slide in 2000 was smooth, no jerky moves; just a small rally at the end.
Why does it seems that this time things are different?
Usually, and on a statistical basis, the end of weekly cycles are pretty smooth.
This time, they are very jerky.
The explanation might be found in the fact that Big Ben, with it's interventionist bias, is just putting chaos in the market.
To interfere ON the market with the "protection team" is not a wise move.
Intervention should occur outside the market, not within!
This is a critical issue.
This is not a crash, therefore, this is not a chaotic behavior.
Chaos should not be acted upon but surrounded and cooled off.
And when there is no chaos, there is no need to induce one.
This is a great concern.
Chairman Bernanke might just start here a vicious circle.
He puts chaos in the market and will put even more of it once he will start to intervene on it.
Stampede is therefore a possibility.
Roger will explain to you (as well as many other coherent things) how not throw vodka on fire. This is what the chairman is doing.
A crash? Not good planning to over anticipate, whether bullish or bearish. I like your religion of moderation. What scares me is that we have a new chairman that the world would like to challenge and parabolic rises of the like of some of our commodoties has got to give us all fear of history repeating itself. The differenc here is that evaluations are not high, there are real profits, and demand is steady. What are the credentials of the report that worry you. First glance, it looks like eliotwavespeake???? Whatever, thanks for reminding us to protect profits.
OSS, great stuff, even the vodka on a fire!
to anon, thank you for the kind word.
There is so much talk about the FED being "unpredictable"
I truly understand that point of view, because they have done the exact same thing 17 times now. All this volatility must be due to an unpredictable FED :)
Post a Comment