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The Market Is All Right, As If By Magic


All crises find a new cheery coat of hope. Like magic.

Sailin' away on the crest of a wave
It's like magic
Oh rollin' and ridin', slippin' an sliding
It's magic

- Livin' Thing (Electric Light Orchestra)

Alan Greenspan was an eloquent spokesman for the gold standard and a critic of the System's subservience to the banking cartel. That was in 1966. After he became a director of J.P. Morgan & Co. and was appointed Chairman of the Federal Reserve in 1987 he became silent on these issues and did nothing to anger the Creature he now served. Like Bryan (William Jennings Bryan), even the best of men can be corrupted by the rewards of politics.
The Creature from Jekyll Island

Bless the market's pointed little head. There are new highs on the indices, appropriate enough for a market that has up-ended all semblance of logic: It better allows the bullishness to screw in its horns and stand on its head.

Midsummer swoon turns into fall bloom. As if by magic. Midsummer nightmare on Wall Street awakens to a dream on Elm Street. As if by magic.

Credit crunch is to equities as a balloon is to deep sea diving. And like a ball plunged underwater, ever since 1987 the market seems to come back from the depths every time. Every precipice, every seizure, every coronary bounces back from the brink. Like magic.

Each episode that threatens the fabric of the financial system has simply served to pull the market rubber band back, sling-shotting stocks to yet new highs at every crisis.

Whether it be the Asian contagion, the Russian debt crisis, the LTCM fiasco, the technology debacle after the 2000 Internet bubble or the recent sub-primevil episode, every bust leads to a new boom. Like magic.

And it seems that the frequency and breathing room between these bouts of panicky declines is becoming shorter and shorter. Witness the bounce back from the February/March swan dive and this summer's swoon.

All crises find a new cheery coat of hope. Like magic. Each patina of possible fear is simply papered over by fiat money.

Do the powers-that-be want to start a new boom to prevent a bust? Does a new boom lead to an even bigger bust down the road?

Last month's jobs report seemed to lend cover to the Fed's slash-and-burn-rate posture. Now, like magic, given Friday's jobs data the economy is doing just fine thank-you-very-much after revisions of last month's numbers. One data point whispers recession, the next one causes little introspection or consternation. Like magic.

It's a peculiar dance of stocks, from the Charleston to the Jitterbug and back again. This market is no Arthur Murray alumni – it's a Mephisto Waltz.

The market seemingly takes a magic carpet ride of born-again bullishness. Like magic.

Interestingly enough, the market may have worked its magic into a trifecta of three-card Monty. Many times the market plays out in threes. Since the beginning of the mother of all bull markets in 1982 there have really only been two occasions, 1987-1990 and 2000-2003 when the buy-and-hold religion was tested. Then, twice this year, after a five-year evaporation of volatility, the buy-and-hold mantra got a baptism by fire. Two significant selloffs raised the hair on the back of Hoofy's neck and sent shivers down the back of most dyed-in-the-wool bulls.

There is an old expression that comes from World War I as the Allies faced off with the Germans across the lines – three on a match. Soldiers learned never to lean over to be the third to light their cigarette on the same match as that gave enough time to put them in the line of fire. So we may soon get to see if the third time is a charm for Boo.

It's party like it's 1999 once again with many stocks erupting as they did into the 1987 top and the top in 2000. But the question is whether it's real or Memorex: will the S&P mimic the marginal new highs it made in July and slingshot back down? From where I sit any move back below the June highs of 1540 S&P suggests the uptrend may be in jeopardy. The important thing to remember is that when parabolic arcs break, buying pullbacks can be dangerous as experienced money managers will look to take not-so-graceful exits and cut-and-run before the end of the year if their favorite stocks break such arcs.

Editor's Note: Want more of Jeff's insight and trading ideas delivered to your inbox daily? Minyanville is proud to announce that we have launched Jeff Cooper's Daily Market Report, complete with Jeff's day trading and swing trading setups. Email Josh Sander for more details and how to sign up.
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No positions in stocks mentioned.

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