For Whom The Spell Tolls
...in bull markets nearly all news is considered good. In bear markets nearly all news is bad.
The tolling of the iron bell
Calls the faithful to their knees
To hear the softly spoken magic spells
-Pink Floyd (Time)
"The distinction between past, present, and future is only a
stubbornly persistent illusion."
The market is as hungry for information as investors are for reasons to explain the beast's behavior. But let's not confuse information with enlightenment. Unfortunately, not everyone achieves enlightenment.
The market will read into this week's slug of data – topped off by Friday's job report – whatever it wants.
In my experience in putting the pieces of the market puzzle together, in bull markets nearly all news is considered good. In bear markets nearly all news is bad.
As investors and traders we are bombarded by information. If you actually analyze the data and market commentary after a bull market has already begun, and look back to the same data set, statistics, and commentary in most of the financial press, you will almost always find that little had changed. What was interpreted as bearish before the low was viewed as bullish after the advance started.
This is keeping with the notion that the news creates the psychology, rather than the other way around.
I mention this as Bears to the left and right are becoming proselytized to the bullish camp whole hog so to speak. I mention this as the professional and spectator sport of rationalizing the advance gets into full gear, and a new flick "Desperately Seeking Justification," gets rolling on the Street.
I have some opinions as to what creates and changes market psychology, but that is a subject for another time and place. Suffice to say that financial market crowd psychology seems to be cyclic phenomena running in recurring periodicities. As I often say, "The news breaks with the cycles."
Most indicators are descriptive rather than predictive. That's why I like to use time and price, as often they can be predictive. In my view, time and price run in cycles. As Einstein said, "Time is not a straight line, but curvilinear."
When time and price "square out" or meet on the X/Y axis on a chart, they become one and the same. For an example, the high on the S&P last week, from which a solid reversal occurred, was 1532.45. The date where this four-year plus advance began was March 12, 2003, which was 1,532 days ago. Time and price, price and time. Oprah, Uma. Uma, Oprah.
This does not necessarily mean that last week scored a significant high. But, any high in a blow-off where emerging markets frenzy, and the synchronous worldwide mania exist must be watched carefully as a potentially important turning point. It is, to be sure, a level from which some kind of correction should play out, however short-lived it may be. It is also worth remembering that the stronger the bull, the stronger the reaction.
The longer the 1532 level holds as resistance, the greater the likelihood it is exerting an influence and will become an important pivot moving forward.
But, because the market is in a blow-off phase, it seems "logical" that the S&P will exceed current levels in time and price. It seems "logical" that the current blow-off will not end at least until a new closing high above the 1527/March 2002 high, is scored. It seems fitting that the current blow-off won't end until at least a new intra-day high above the March 2000 high at 1553 S&P is notched on Hoofy's belt.
Square out or not, it is not unusual for a stock/index to approach an old–standing closing high and fail to recapture it on the first few attempts. 1532 S&P may signal a reaction – especially since the Weekly Swing Chart has been up for ten weeks now – a rare event. But it is important to remember that blow-off phases overshoot and exceed picture perfect time/price harmonics.
I hate applying the term "logical" to parabolic rises, but it does seem logical that the S&P as a key benchmark will exceed its old intra-day high before the blow-off is exhausted.
Additionally, as I have mention before, the typical timing of blow-off runaway markets lasts three or four months. Counting from the low close of March 5th, that projects to a window worth watching between June 5th and July 5th. Counting from the intra-day low of the spring shakeout of March 14th, it projects to June 14th to July 14th.
Ron Griess, of TheChartStore.com, did an interesting study where he showed how the current chart looks eerily similar to the bottom and final thrust into the ultimate top in both the 1942 to 1946 advance and the 1982 to 1987 cycle. The final thrust in 1946 lasted 77 trading days. The final thrust in 1987 lasted 67 trading days. The current thrust started on March 6, 2007. 67 trading days equal June 8, 2007. 77 trading days equal June 22, 2007.
This is interesting when you consider that next year's estimates for the S&P are around up 20% on a conservative basis The point is of course, that Hoofy has done a great job proselytizing a lot of bears – even some famous ones. The point is of course, that the favorite pastime on the Street is extrapolating the current run ad infinitum. The favorite sport is extrapolating the present into the future. It has always been this way. The engine of momentum pulls the caboose of complacency.
However, in my experience if it seems too good to be true, it probably is.
If you are betting on the China Call and the Boom Boom (Bernanke) Bid – that China's call and demand for everything under the sun, and that Bernanke supply creation of liquidity will be the ying/yang lifting balloons ever higher into the stratosphere of rarefied oxygen; then it may serve you well to consider that you may be betting on the Chinese government's inability to slow down their economy to a manageable clip. You may be betting on the Chinese government's inability to tame their citizens' speculative frenzy. You may be betting on the short chopstick.
If you interpret as intractably bullish the current behavior of the Chinese market to shrug off months of warnings from officials, including a hike in the investment stamp tax rate yesterday, you may be well served by history in recalling that the Fed warned of excessive speculation in January of 1929.
Governments are funny about not being taken seriously. They've gotta lotta cushions, but they've also gotta lotta pins.
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