February 19, 2009
The markets dropped a little over 1% today. The NASDAQ
to close at 1,443,.
and the S&P
to end at 779.
up at $38.65
a barrel because of surprisingly low inventory levels, and gold dropped
to end at 47.08!
What's significant about today is that the Dow broke
significantly below its November, 2008, lows, confirming a similar break by the
Dow Transports. This led the Dow Theory protagonists to proclaim a new down-leg
in the ongoing bear market. Mark
Hulbert: Dow Theorists spot a bear.
this bear market thesis wasn't confirmed by the NASDAQ and the S&P 500,
which are still several percent above their last-November lows. And once they,
too, fall below their lows, the bears will have capitulated, the market will be
oversold, and it will be time for at least a short-term rally. Or it's possible
that the market will go back up tomorrow, and that this drawdown will be
proclaimed a successful retest of the November lows.
The other item of interest today is that the VIX actually
fell, suggesting complacency in the face of this Dow Theory breakdown.
In the meantime, this appeared tonight: Signs
of success in Fed's Fannie, Freddie programs.
This might be a good time to mention why I'm not talking
about buying high-dividend, blue chip growth stocks, or high-dividend staple
stocks. The problem is that although it would be nice to gain 7% a year from
high-yield stocks, they could so easily drop by 14% and wipe out two years worth
of dividends. With respect to shorting the market or trading the market, the
problem is that these are high-risk strategies, and I wouldn't want more than
10% of your portfolio at risk this way. If I relished the thrill of the chase,
this might be an exciting pastime, but if I want to be sure I won't lose any
more money, I'd probably better eschew these chills, thrills, and spills.
Alternative energy is being bruited as the fashionable place to be, but the
leading-company green-energy stocks and ETFs I own or have been watching haven't
gone anywhere. (They were down today, with the exception of First Solar, which
was up 1.61%
And for me, the larger problem is that of where this contraction will end.
Today's market action reveals the dangers of buying the party line that the
November lows were the
lows for this cyclical bear market. That may still happen, but I'm glad I
haven't put more money into the market just yet.
is probably a "swinging-door" day in the stock market. If the Dow
soars near the close, then we'll probably have seen a successful retest of its
November lows. If it closes much below this morning's opening price of 7,555.63,
then it will probably have broken out of, and down from its 2½-month trading
range. Right now, it's on a knife-edge. The next hour-and-a-half may be fateful:
line holds,but just barely.
all the bearish arguments, and projections of Depression 2, there are still some
compelling advocates for a turnaround in the second half of this year. The
latest is the Conference Board, which projects "anemic
in the second half, with robust growth not returning until "well
point to easing recession. Five of the ten leading indicators rose for
January, one of which was the amount of money the Federal Reserve pumped into
the economy during the month. Increase
in money supply means recovery is near, some say However, MarketWatch
First Take: Leading indicators are a head fake. This article explains,
indicators that track the real economy are still falling, while most of the
indicators that track the financial system are improving." The article goes
on to say that "no one believes the financial system is actually improving
in any meaningful way".
Most of the improvements in the Leading Economic Indicators reflect the immense
amount of money that the Fed has injected into the economy. Normally, this would
...have a big impact where people actually produce and consume goods and
services. But so far, the surge in the money supply hasn't had any impact on
growth. The Fed is flooding us with money, but that cash is ending up in bank
accounts and in mattresses. But in times like these, with a deflationary
liquidity trap threatening, the relationship between money growth and economic
growth doesn't hold in the same way, or with the same timing, as it usually
Report: U. S. weekly jobless claims unchanged at 627,000. Two weeks earlier,
the initial jobless claims came in at a four-week average of 631,000.
Continuing jobless claims rose to a record 4.98 million. (The four-week average
was 4.83 million (Bear in mind, though, that these are absolute numbers that
don't take population growth into account.) The article says, "The
claims data point to a 'significant pickup' in the pace of job losses in
February and a greater rise in the unemployment rate, said economists John
Ryding and Conrad DeQuadros of RDQ Economics. 'Based on a simple regression of
initial jobless claims and nonfarm payrolls, the average level of claims thus
far in February is consistent with a greater than 700,000 drop in payrolls,'
they wrote Thursday, adding they will wait for next week's jobs-related data in
the consumer confidence report before coming out with an official forecast.
...producer prices rose by 0.8% in January."
(This was primarily because of a rise in the price of oil.)
This so tricky. The stock market starts up not
when the economy reaches bottom but when the rate at which conditions are
deteriorating switches from faster and faster to slower and slower.
So what we have to ask ourselves is: are
the current economic indicators declining faster and faster or has their
If these initial jobless claims are about the same this month as they were last
month, then the rate
at which people are laid off may be stabilizing, consistent with the notion that
the rate at which employees are laid off may begin to fall to 400,000 (as a
trailing four-week average) and then, in the next few months, to 300,000,
200,000, 100,000 , with layoffs stopping altogether in six to nine months as
employers start to think about rehiring to service the 2010 economic recovery.
For example, last fall, the rate at which layoffs occurred suddenly soared, and
the stock market sank accordingly. Then at the end of the year and into January,
the layoff rate plateaued (along with some other indicators), and the stock
market plateaued with it.
The above considerations assume that the performance of the
economy will trace out an upside-down bell curve. But what if it doesn't? What
if it undulates as it continues to decline? Could a
"wait-and-see" mindset on the part of professional investors may be
why the stock market hasn't already begun to climb?
Meanwhile, this morning, although the NASDAQ Composite and
the S&P 500 are still comfortably above their November, 2008, lows. the Dow,
at 7,483, is below its 2008 low and is approaching its 2003 low of 7,400, and
its 2002 low of 7,200. Of course, this still falls under the rubric of
U.S. stock investors eye another test of bear-market lows. Why is the stock
market falling? Here's one explanation: Battipaglia:
The market is giving stimulus efforts a Bronx cheer.
Note that this is options-expiration week, and usually
bullish for stocks (unless its bearish, in which case, it tends to be very
For now, cash is still king. For me, who's mostly in cash,
it's wait-and-see. (The dangerous time will come if the stock market moves