Tuesday July 27. 2010
Dear Market Perspectives
Clearly your bearish attitude is incorrect. The market had a brief correction, home sales are perking up, homebuilder stocks are up, market averages are breaking through their MAs, Geithner is sure that massive tax increases will be just the ticket, and even the European bank stocks are up. Are we missing a great opportunity to get long?
Frustrated Trader
Dear Frustrated Trader,
Not so fast, remember that we are half way through an 18 year cycle of business stagnation, spectacular rallies are a feature of bear not bull markets, let's go back to the summer of 2008....
Then as now the market topped in late April, actually May 2008. The market sold off decisively falling from 1375 to 1150 in two months. OBV pegged the low in July, gee just like now! The Market put in a solid rally of 100 S & P points in to August where it hung around for the next month. Then after Labor Day, it collapsed. The ETF SPX did not exist in 1987 but the S & P did, we do not have OBV numbers for the index. Let's hop into the stockcharts Time Machine, by the way, note the level of the S & P, less than one fourth of today's number.
Markets never do quite the same thing twice in a row. Then stocks bottomed in April May and rallied throughout the summer. But again stocks topped in August and simply hung around until Labor Day. Dancing cobra like before so many mongoose observers, it languished into October, still above the May lows. And then, a rush to the exits.
There is no assurance that time patterns will repeat in the same time frame. Indeed, we would think the market, having crashed in 2008, is more likely to do a slow melt the next two years. Like the famous frog in the slow boiling water, it will be harder to discern the breakdown. But I am speculating, the point is that markets have made seasonal highs in August only to violently reverse in the fall. Now let's set our Time Machine to 2002.
Am I cherry picking here, yes without question. Here is the view from 2002. Again, the market made a low in July, and rallied 175 points into August, yes Virginia, August is a seasonal high for the markets. It then promptly gave back all those gains with a double bottom in October.
So here are three instances of July lows, August highs, and Fall disappointments. Stay nimble, as Art Cashin likes to say.
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