State of the Markets Letter December 2004
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December 27 2004 Back to the Cave, Bears
With the fall of the year's highs, a major Dow confirmation signal and the handwriting on the wall, bears must either reverse, go to the sidelines or hedge. We try to make a habit out of not believing and believing, but of observing the chart. In about a month's trading days the market took out the entire action of 9 months of gently descending bear market. Some of the volume is eye-popping. Classical methodology leaves no alternative but to be long. An alternative for the cautious is to go to the sidelines.
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This presents delicate conundrums, as classical interpretation causes us to be extremely sceptical of the market's ability to slog through the accumulated resistance of the monster bull market ended in 2000. If anything we regard it as the most humongous bull trap of all time, just at the bull market of the 90s was the most unbelievable bull market in history. The Dow has confirmed the S&P, which led the way as may be seen here. |
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A skinny confirmation by the NASDAQ and tentative but with the ipods flying off the shelves and Amazon selling 13,000 units of "Return of the King" in one day time to think. Long term analysts are not fond of shortening their time horizons, but are even less fond of being gored by bulls or clawed by bears. At present we are preparing a new strategy which will probably trade more often. We will shortly inform subscribers of the address of the new State of the Markets Letter. |
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December 3 2004 As Thomas Paine said...
These are times that try bear's souls. Readers of the 8th Edition of TAST will be familiar with our Composite Market Theory which says that, replacing Dow Theory, the major market indices must confirm one another in order to have a bull market. While the NASDAQ and S&P have gone to new highs the Dow is stalled right where you would expect it to be stalled. If this is the season of the witch (i.e. when everybody gets his capital losses on record for the tax man) it should be the final barrier for this little bull. Nine months of meandering bear, one month of vicious rally -- and now? And now, watch closely while we put on our economist's hat. And now Chicken Little is coming home to roost. Dollar sinking like anchor. Deficit rising like hot air balloon. Interest rates in Kansas or with Wizard of Oz. A bubble of such unreality that one shudders to see the Administration playing with toy soldiers on the railroad tracks while around the bend you can hear the train whistling. De Nile is a river in Washington.
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A closer look at the Dow shows an implied broadening pattern -- higher highs, lower lows. A bearish sign. |
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The COMPQ assaults a major high and a major resistance line. We do not consider this a breakout as yet, only more of the bull trap. A 3-5% penetration of the top might make us change our minds. Especially if the Dow took out its top too. |
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The S&P as may be seen is nose up against a critical resistance zone. I has taken out the nearby high (Feb) by more than 3%, but not by 5%, (Magee thought 3% was dispositive. We think in the modern era 5% is a better benchmark.)
We are clearly at a critical point in the markets.
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November 28 2004 Thanksgiving, or early Christmas for bulls?
No question the bulls are getting an early Christmas. So why is everyone (including us) looking a gift bull in the mouth? Maybe because everyone (including us) thinks the wrong people bought and it's a trap. And, an important trend line is broken and several important basing points (highs) are taken out. The lack of a bottom formation contributes to analytical suspicions. Does this begin to look like the historic fin de siecle top of the gay nineties top? (Pardon our French) As with everything in the market we won't know till later. We do know to be on guard.
February top not taken our (yet). No bottom. Price against resistance. And we feel something is about to pop.
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