When Lightning Strikes Twice
Lighting struck yesterday with a double bolt of juice in the way of both a fed funds and discount rate ease.
I was hit by something last night in my sleep.
It's a dead man's party, who could ask for more?
Everybody's comin', leave your body at the door.
- Dead Man's Party (Oingo Boingo)
Lighting stuck twice yesterday as the Fed cut interest rates as expected.
But lighting strikes every day in MV. I have been on the Street 25 years - from Drexel Burnham to running a hedge fund with my father to being a private trader and consulting with hedge funds - but I am in awe of the sheer talent and body of knowledge and understanding of the financial markets that is the MV community. Day after day, magic is spun on the Buzz. & Banter.
Lightning may have stuck twice with the major indices all rallying at least 1% but both the DJIA and the S&P have yet to confirm the new highs in the NAZ. At the same time there a major divergence remains in place as the Dow Transportation index remains waterlogged below its 200 dma. The index remains entrenched below its June lows. In addition, my work shows a major divergence in momentum in the DJIA itself.
Lighting struck yesterday with a double bolt of juice in the way of both a fed funds and discount rate ease. Lighting struck again charging up the FOMC Cha-Cha-Cha. More headfakes and whipsaws in a few hours than all the money that's fit to print can buy. Welcome to Dancing With the Equities. It's not a reality show.
Lighting struck again yesterday with a purely Pavlovian response to more bones for the pit bulls. And thunder abounded by the pundits, P.M.'s, and strategists who worship at Goldilox altar and chant their book... guess what, folks, now we're going to see the market meltup into year end.
It's possible, of course. To be sure stranger things have happened and fewer stranger years are on record in my experience. It's hard to remember a time when the market has ignored so many potentially significant pitfalls. But that's what 15% money supply growth buys ya, I guess.That's what a Working Group will get ya if on the right pay scale.
Speaking of lighting striking twice, I received the following email yesterday from Minyan JL.
"On January 24, 2001, the NAZ posted a closing swing high of 2859. Five sessions later, on January 31, the Fed cut rates for the second time (50 basis points). The index then fropped 40% over the next two months. 81 months later, as the FOMC cuts for a second time, the closing NAZ high: 2859."
Truth indeed is sometimes stranger than fiction.
With yesterday's rally the S&P finally scored a new all time monthly closing high, six months after the May closing monthly high. Is it a false sense of securities, as Todd asks?
Well, as I showed yesterday, it is interesting that the S&P also scored a new monthly closing high six months after the March 2000 closing monthly high. I suspect at that time there were analysts talking their book, earning their keep, throwing their pom poms around in anticipation of a meltup into year end as well. Of course, they were all dressed up with nowhere to go.
Was Wednesday lightning in a bottle? Is the Fed selling an strange brew, an elixir where the culprit and the cure are one in the same... vitamin C, credit? Or was Wednesday a false sense of security with market on close buy programs poised to send salvos into the fray and save the day for year end no matter which way things went in the afternoon? Just askin'.
Is the market all dressed up with nowhere to go, after the invitation has arrived?
Unfortunately, the invitation may be gold-embossed, as in $1000 gold. Clearly the language in yesterday's Fed invitation indicates that there will be no more silver dollars on each eye---that there will be no further rate cuts. Weakness on Thursday and early next week would be bearish and may indicate that Wednesday was a dead man's party. A new year starts today and many funds that may have felt "trapped" in August can "legally" sell now. So the action over the next week will be telling.
Unless the S&P can capture the July high of 1556 the index may leave its body and soul at the door of a Head & Shoulders top as many glamors are stretched about as far as I've ever seen stocks stretched. Recent boomerangs in names like Crocs (CROX) this morning and Garmin (GRMN), DryShips (DRYS) and Excel Maritime Carriers (EXM) show just how violently stocks can slingshot down. When leaders begin to stab down like this, typically the indices are not far behind.
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