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Fiddler On the Roof


How is it players can step in to buy falling daggers in March where angels fear to tread and come out smelling like a rose?


I caught the train, I met a dame,
She was a hipster, well and a real cool dame,
(she was handsome) she was pretty, from New York City,
well and we trucked on down the old Fairlane

--Train kept A-roll'in (The Yardbirds)

For four years running the market has shrugged off any and all concerns that would have typically generated a ten percent correction.

Even the sell off that was precipitated in China in February which rippled through world markets failed to yield a ten percent correction on the S&P. Moreover, the S&P also failed to score two other technical benchmarks which I would have expected to occur - especially from such a staunch downward angle of attack. Namely I'm referring to:

  • The S&P failed to tag its two hundred day moving average on the decline that began at the end of February.
  • The sell off also failed to turned down the important Quarterly Swing Chart. In other words, the decline held above the fourth quarter low. The fourth quarter low of 1327 on the S&P was scored on October 13, 2006 (which not too coincidentally coincided with the May 2006 high).

In my view even a bullish correction should have satisfied both technical considerations--a tag of the two hundred day and a turn down of the big Quarterly Wheel Of Time. It didn't happen. Woulda, shoulda, coulda. Based on my study of the history of the S&P, there was a better than average likelihood that both of the above technical benches would be met--a very strong likelihood. To be sure, that was my expectation at the time.

However, they just don't allow this thing to breathe. Volatility has been annihilated. Long live volatility. To give you some idea what a normal year looks like there are typically two ten percent corrections and one twenty percent correction in a normal year.

Do you get the feeling that if we saw a twenty percent correction from this point on in the year that there would be a whole lotta ledge walking in New York City?

So what gives? Why doesn't the market breathe anymore? How is it players can step in to buy falling daggers in March where angels fear to tread and come out smelling like a rose? The answer in a nut shell as Professor Bennet Sedacca offers (on another thread as to yields is "money, money, money, and more money").

In a column the other day I mentioned the Exploding M's (no they're not related to the Flying Wallendas, but maybe they should be). Well, there baaaack--it was reported on the Buzz yesterday that "the Fed is sure printing a lot of dough." This morning it conducted its fourth coupon pass in a week! For those keeping track this brings the Fed's purchases of long dated Treasuries in the month of April to $6 billion. That's more than triple its purchases in the prior three months combined."

And this is the gang that can shoot straight--straight at inflation?

Sometimes I'm a slow study - but, I get it now. I have finally figured out how to tell when the Fed is hyping us - their lips are moving.

Perhaps the Fed is worried about the housing recession and the subprime issue spilling over into the rest of the economy. I don't know where they would get such a silly idea like that--just because every housing recession has always led to an overall economic recession.

This just in--General Motors (GM) blames slow sales on the subprime issue.

Maybe it's different this time and the global boom will cushion the U.S.

Conclusion: In the last column, G-Spot, Cat Nip, Heavy Metal (or as they call it at Keith's Place, Sex, Drugs and Rock-n-Roll), I mentioned that Google (GOOG) and Caterpillar (CAT) along with the non-precious metals drove the point count above the 147 Spyder strike. If everyone was so enamored of Google's earnings, why is the stock down a quick 13 from Friday's high? One the other side of the ledger, Goldman Sachs (GS) popped over $220 to a new all time high. CAT tailed off while the metals melted up even more. It was a mixed day with the indices at large taking a well deserved break on the heels of GM's excuse--uh, comment.

Follow through as always will be key but if we're down after the first hour on Tuesday look for 1475 S&P to be tagged.

Trade back below 1475 that occurs quickly would leave a Minor Boomerang Sell Signal. However, it is important to remember that Large Sell Signals begin with small ones and vice-versa.

No positions in stocks mentioned.

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