Thursday Oct 19 2017
Bob Prechter has devoted his last five monthly EWT to an elaborate outline of Fibonacci and time relationships back to the 1932 and 1974 lows to this high in the stock market. It won't be over till its over but this week is the 30thj anniversary of the 1987 crash. That happened a Fib 5 years from the start of the bull in 1982. And we are a FIB 34 years out from the collapse of duPont Walston in my first disastrous foray into the stock market.
John Murphy at stockcharts.com observed the over bought nature of the market in his update yesterday. It is a bit of a relief to see yesterday's action reversed in pre open trading.
Learn more about Leonardo of Pisa here.
The bond market had topped in price in March 1987. Rates fell from about 7% to 10% by October. Stocks had advanced 3.5x since 1982 from 800 to 2700. So called portfolio insurance was popular among big funds. It was the 50th anniversary of a market turn in 1937.
Stocks had been selling off since mid September, the final Swoon that Monday, as John Templeton observed on Wall Street Week the following Friday, was the end of the short term bear market. Watching that day the market had come back from the lows of the morning, I thought we might close down 50 points by day end. But at noon the heads of the NYSE and the NASD suggested they might just close the markets. That did it with everyone racing for the exits, a waterfall of selling into a non existent market took the market down 500 points.
Stocks have not had any indication of sell off but are in a parabolic arc upward. In today's WSJ Ralph Acompora has run out of room to paint the rally on the side of his barn. Circuit breakers have been created to suspend trading for various time periods if the indexes fall fast enough. The idea is to abate the panic in the meantime.
What could go wrong?
On page A2 of today's WSJ Trump seems to determined to repeat the error of the disastrous Smoot Hawley tariffs of the 1930s. Trump is obssessed with NAFTA. Hundreds of Chambers of Commerce have sent letters of protest and economists do not agree. Here in Texas the trade route from Laredo to Dallas along I 35 regularly grinds traffic to a halt. This is the view of Democrat union protectionists. Clinton signed NAFTA over their protests. The WSJ ran an editorial this week showing just how hard ditching NAFTA would hit the auto industry. Over regulation here and improved conditions elsewhere have resulted in the move to Mexico. But that results in more wealth their which is channeled back here. A tour or of the luxury goods available in San Antonio dept stores frequented by Mexican visitors is truly amazing.
Page A 10 has a photo of what is left of Marawi in the Phillipines. It is literally a Mad Max scenario complete with severed heads. As Peggy Noonan observed in her column, Americans own guns because they do not believe their government will protect them.
Wave 5 can certainly go as far as it wants. So far not much pullback which is worrisome in itself. At bottom CCI is way over bought, the opposite of late 2008-early 2009.
Market tops occur amid widespread optimism. We have detailed this from $24 cup of coffee to the $2 M Bugatti and $800,000 Ferraris on sale. In fact the decision to expand Ferrari production from 7,000 units a year to 10,000 is emblematic fo such optimism. That planned 52 story office building in Midland, TX which was cancelled just in time for the oil crash, is the same sort of idea.