Market Wrap-Up (2-12-2004)

FSO ^ | 2/12/2004 | Martin Goldberg

[Orangedog]

Home  l  Broadcast  l  Market Monitor  l  Top 10  l  Storm Watch  l  Sitemap  l  About Us

Today's WrapUp by Martin Goldberg 02.12.2004  Mon   Tue   Wed   Thu   Fri   Archive

"Presidential Election Conspiracy Theory"

I have received much e-mail in the fall suggesting that there are interventional forces acting to keep the market going up or at least prevent a meaningful correction from occurring until after the presidential election. When I first read these e-mails, my initial reaction was to dismiss them as reflecting the opinions of a generally bearish FSO readership. However recently, I have also seen some of this same presidential election rationale routinely used in some mainstream publications such as the Barron’s Roundtable, and quarterly newsletters of major brokerages. Basically, these publications suggest that Fed policy will be accommodative of the stock market until the election and that these policies will be successful in supporting the stock market until the election. In addition, I have found that this “presidential election” support theory is prevalent at many pubs and water coolers around town. It almost seems to be common knowledge that the market will not fall because of the organized support that is anticipated to remain until the November election.

Whatever the specifics of the interventional forces (or Plunge Protection Team (PPT)) used in this conspiracy theory, if it is real, then we may have a timing tool for an overdue stock market drop. Since the market is a “discounting mechanism,” it’s obvious to me that the market should be hit with a wave of selling before the election. Why before? Do you believe that anyone holding stock based on the presidential election rationale would be foolish enough to hold his or her stock until after the election? How do you think that would that play out? Would the PPT allow all widows and orphans to sell on the Wednesday after the election at the closing price of Election Day? Would they then allow all momentum players and day traders sell on Thursday, and mutual fund investors on Friday, all at Tuesday’s closing prices? I don’t think so! Such privileges to sell at yesterday’s close were only allowed by some mutual funds for their hedge fund customers. That is, before these people got caught cheating. If you feel that interventional forces are supporting the stock market, then you may want to consider selling in advance of the presidential election. Actually, even if there is only significant belief of organized support (and no actual support), that could also precipitate a stock market drop in the early fall. Show me the person that will buy stocks after the November election because he feels that the Fed (or whatever the form or organized support) is going to support the stock market before the election.

My point is that if you believe there is a PPT, then you should look for a stock market drop before the election since the stock market is a discounting mechanism. And the pre-election drop could actually affect the election results in just the opposite way as was intended.

Do Patterns Repeat?

The charts that I present below may stimulate your thinking on whether “this time it’s different”. The chart on the left is the Dow Jones Industrial Average in the 1920’s plotted on a numerical scale. The chart on the right is a chart of the 1990’s to the present Nasdaq bubble, plotted on a log scale. Note the similar shapes in each chart. Since the recent Nasdaq chart is plotted on a log scale, and the 1920’s Dow chart is plotted on an arithmetic scale, the Nasdaq chart is much more “extended” at its top compared to the 1929 chart. Also note the presence of an important rally in both cases. We are in the midst of our “important rally” now. Although the durations are scaled longer on the recent Nasdaq chart, it is interesting that the important rally occurred within a timeframe that was proportional to the time needed for the parabolic rise to occur in both cases. The DJIA chart finally bottomed near the bottom of the diagram (not shown). Where will the Nasdaq chart bottom?

OK. If you buy into patterns repeating between previous generations and today, here is another “chart” to consider….

Yes, the present day “chart” (below and to the right) is much more contrived, displaced, and artificial compared to yesteryear’s chart. Some may suggest it’s somewhat analogous to our current “economic recovery” compared to the one in Joan Crawford’s day.

Greenspan Testimony

I was at home sick the last couple of days, and on some painkillers. That is probably the best way to watch CNBC - in a state of half-consciousness. Watching the Greenspan testimony yesterday, I think he said that new jobs were just around the corner; but he couldn’t answer the question of what industries the jobs were going to be in. He seemed to tell young people to learn how to read and write, and the jobs would come from American innovation, from some as yet, undefined industries/functions. Yet today, he sited the failure of our education system. So what would make the jobs happen? “It’s always been that way before in the US”, said Greenspan.  Not much for young people to go on here. In any case, the stock market loved Tuesday’s testimony, and was neutral on today's.

Today’s Market

A second day of Greenspan testimony, Imclone, and more on Comcast/Disney highlighted today’s stock market action. Today’s stock market resulted in a give back of most of yesterday’s gains. The Dow and S&P 500 were down less than 0.5% and the Nasdaq and Russell 2000 were down by about 3/4%. Volume was light on all exchanges. Gold was little changed, finishing at about $411.90 per oz. Silver had a tremendous roller coaster ride, trading as high as $6.69, before trading down $0.02, to close at $6.57. We’ve seen this happen many times before. It tries the instincts of traders who consider taking profits off the table after precious metals surges and wait for another lower entry point. Some very intelligent money managers tell me that you should hold your positions in a bull market. So hold, I will. Dell reported self-satisfying results, which made the CNBC commentators happy. Yet the shares are down in after market trading by about 1.5%. I don’t know what speculative favorite, Nvidia reported with their earnings, but it is selling off in very heavy trading after hours. Imclone is making the entire group of CNBC birds chirp, and it’s trading like a manic-depressive. Looking at the nutty trading patterns of Imclone, it’s difficult for me to believe that the whole Martha Stewart thing is over a couple thousand shares of this speculative favorite. Yet it is.

There was a lot of talk about the Comcast hostile takeover attempt of Disney in an all-stock deal. Given how much the deal has changed from the stock price moves over the last few days, you would have to wonder how much sustainable synergy is in the combination. The same amount as AOL/Time Warner? Comcast is selling off. Look for a wave of analyst upgrades of Comcast in the next few days.

The 10-year note sits just below a short-term resistance line, as shown in the chart below. It finished marginally down today.

Have a great evening!

Martin Goldberg

Copyright © 2004 All rights reserved. Martin F. Goldberg, MS, P.E. Market Analyst Expert Page Commentary Archive Email

Back to Top

Home  l  Broadcast  l  Market Monitor  l  Storm Watch  l  Sitemap  l  About Us  l  Contact Us

Copyright ©  James J. Puplava  Financial Sense™ is a Registered Trademark
P. O.  Box 503147 San Diego, CA 92150-3147 USA  858.487.3939
Disclaimer

[Orangedog]

I think the second chart should be of particular interest.

[Orangedog]

Ping!

[Steven W.]

The second chart is the most foolish, contrived thing I've ever seen - it compares apples to oranges in such a skewed, controverted way - it's so transparently contrived it's laughable.

[Orangedog]

Come on, tell me what you really think. ;)<

But seriously, you can't see any similarities between the situation then and the one now?

[imawit]

Geeez you post this early. Doesn't give me time to close my trading and get to the office to close it for the day.

NOTICE ! refi's are up in LA, major volume showing up.

I swear, there was nothing but traderbots on the BUGS today. No event, no emotion no serious up or down ticks. Fundamentals are still in, TA trends have not changed and like I said the 3rd factor there were no human events or emotions. Getting boring. Nothing to rant about.

Gold however reached my stated target of $412 nicely and is going for the next plateau, $415.80. A tick a day. The USD is still down and out, flat at just above .85 on the index.

Silver went to town. It touched $6.69. This is a double top. Look for a double top breakout real soon.

The 10yr treasury auctioned today. Didn't see any release on how that went. Anybody see anything ?

[Orangedog]

I'm being VERY careful with gold right now, at least with any new stock positions in the miners. We're still in stage 1 of the gold bull market, that is, it's still a dollar-short play. I'm waiting to see what happens with the ECB in the next few weeks. If they come in under their inflation target, they could fire up the printing press and weaken the euro. If that happens, we will be well on our way to the transision to stage 2.

[mac_truck]

Hmm, wouldn't the ECB inflating their currency help the dollar and consequently be a drag on the POG? Or am I misunderstanding what stage 2 is really all about?

[imawit]

Yup ! Stage II, the sequel to Stage I is on its way to the station.

[Orangedog]

Hmm, wouldn't the ECB inflating their currency help the dollar and consequently be a drag on the POG? Or am I misunderstanding what stage 2 is really all about?

You are exactly right on the effect of the ECB inflating. As far as what the stages are, right now we are in stage 1, where gold moves counter to the dollar. When the ECB inflates, there will likely be a short period where things play out as you stated. This will be the transition period. This almost MUST happen in order for gold to move to stage 2, where gold moves up against all currencies as a result of the inflation of so much paper. Yesterday was a warning sign. All asset classes moved up in unison, and IMO an early warning sign of the possibility of hyperinflation down the road.

[Mr. Jeeves]

Like he says, gold and silver are in a bull market, so I'm just holding my positions. Trying to trade them right now would drive me insane.

[Orangedog]

That's where I'm at right now. I make semi-regular physical buys, but I'm just sitting on my stock for the time being.

[Axenolith]

Both charts are a graphical representation of the interaction of markets and people over time. The underlying cause of the up and down movements are identical, human mass psychology. Effecting the Nasdaq on the log scale only serves to smooth out the effects of greater population and possibly variables of technological speed and machine assisted trading. The motive force of the moves in both instances is identical, the reactions of people as a herd to market forces. In these cases, the herd has stampeded up, down and rallied. The former continued down after the rally and it remains to be seen in the latter. Are you betting against it? I sure as heck am not...

[Axenolith]

Right now gold is a dollar short play here. An inflation of the Euro would be a signal to much of the rest of the world that it's general debasement time and a healthy dose of inflation hedge buying would be introduced.

[headsonpikes]

Thanks for posting these Wrap-Ups.

I love a bull market!

HOP's boots are still full, adding new positions in PM juniors.

When I fill my bids in a certain new silver play, I'll tip my hand. Looking for another triple+, of course - maybe a ten-bagger. ;^)

[Orangedog]

Just as long as you let me know what it is the second you get filled... :)

[HighWheeler]

I agree that the second chart comparison is a complete joke.

In 1929, there were no limits to margin buying, and when the market tanked, it figuratively ate itself through the bottom as margin calls were exercised. It was a sequential vortex that consumed all the value, compounded by the high margin. There was nothing anyone could do to stop it, and many people lost everything faster than they could do anything to stop it. Notice how steeply the 1929 chart dives, nearly verticle.



BTW, I'm long on DKS, DELL, HOV, ELNK, and a few others. I have made a killing this year so far. DELL just tonight reported great growth and earnings.

[Soren]

I'm sure a lot of people will be looking for your calls given your last 2 picks. I keep waiting for SPM to correct a bit. I plan to blow some dry powder on some silver shares tomorrow. Then I'm heading to NZ for 3 weeks. I'm guessing we will see $7 silver by the time I get back.

Good trading, and as Stonewalls used to say, good luck to everybody.

[ExSES]

In 1929, there were no limits to margin buying

For all practical purposes... yes. However, I thought there was a 10% margin requirement in effect back then. Anyone know what the margin requirements were prior to the 29 Crash?

[Semaphore Heathcliffe]

thanks for posting the Wrapup, Orangedog.

Anyone here know why or where RLK was banned?

[Soren]

Smells like intervention on the USD, don't it?