May 8th, 2008
The current “rising wedge” pattern on the S&P 500 chart is paralleling the one from seven years ago very closely. Take a look at how that pattern from the last bear market collapsed:
The big down day came on February 2, 2001 when the S&P dropped 24 points. Yesterday, the S&P dropped 25 points.
On February 3, 2001 the S&P bounced back 5 points. Today, the S&P bounced back 5 points.
What comes next if we continue to parallel this classic bearish reversal pattern? Another 100 points down over the next three weeks.
Will that happen? During the last bear market, we were unwinding a much larger bubble, so maybe not. But this time, we have a genuine financial-crisis/real-estate-disaster which could turn out to be just as bad, so maybe history will repeat.
In any case, this is a very, very scary place to be long. And as you might have guessed, I am way short this thing.
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May 8th, 2008
A few days ago, I posted about how I thought the S&P 500 was in a bear-market rally featuring a “rising wedge” pattern similar to the one that occurred during the last bear market seven years ago.
This morning, I saw my analysis parroted on a major financial website. So, the meme is spreading fast, and traders are beginning to doubt this rally.
The S&P 500 is also struggling to regain and hold the 1400 level. The longer this struggle continues, the bolder the shorts will become.
I was hoping for the market to spike up once more so that I could add to my short positions, but I don’t think it is going to happen.
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May 8th, 2008
This morning, The Wall Street Journal quoted Eduardo Castro-Wright, Wal-Mart Stores U.S. president:
“The economy continues to get tougher and the ‘paycheck cycle’ is more pronounced for customers than in past months. As money gets tighter for them toward the end of the month, sales drop more than we have seen in the past.”
This conjures up an image of half-starving consumers clutching their paychecks, rolling into the Wal-Mart parking lot on fumes, and then devouring a bag of uncooked rice in order to get up enough energy to walk to the gas station and spend the remainder of their paychecks on a can of gas.
But I may be exaggerating…
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May 7th, 2008
Stocks finished very strong yesterday and looked to continue the momentum today, but plunged instead. Everybody seems to think it was soaring oil that caused the drop, but we have been living with that for a couple of years now.
Perhaps it was Cisco that triggered the sell-off. Apparently, they saw some deceleration in their emerging-markets business. As Sanjiv Wadhwani of Stifel Nicolaus noted today:
“While the company was able to deliver order growth in-line with expectations, some high growth areas such as the service provider segment and emerging markets showed material deceleration”
Bulls like Jim Cramer have been saying that the US economy doesn’t matter any more because the rest of the world (ROW) is so strong. Part of the recent rally was due to so many S&P 500 companies reporting strong earnings from their ROW operations. Now Cisco has cast doubt upon this thesis that the S&P 500 can “decouple” from the US economy and rally right through this recession.
Cisco is hinting that we are now “re-coupling” with ROW by exporting our recession. Economist A. Gary Shilling who accurately predicted this recession, says that this is actually a routine development in US recessions - ROW feels it with a lag.
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May 7th, 2008
I have added a new bear-market rally chart to this page. The new chart from January 2001 looks a lot like the S&P 500 does right now.
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