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Gary, I take issue with several points in the article posted from Barrons.
Also, I'm posting a similar chart of the SPX with an alternate view that's
explained after my comments to the Barrons article.
First, the writer indicates that the break of his '94 trend line represents a
'secular' bear rather than a 'cyclical' bear, which means this is much worse.
Why? There's a world turndown? This is nonsense! When the market first took off
in 1994 the factors were exactly the same. Europe had high unemployment and
Japan was still suffering through its recession. However, it was the US that
pulled the world out of recession with the revolution in technology and
development of an Internet infrastructure and the fact that low interest rates
sparked an industrial revolution. Well, here we are again with very similar
conditions, and I suspect the same scenario of an upward push will evolve.
However, we now have military and security issues that will drive demand and low
interest rates to spark corporate spending and production. At the market peak
in 2000 all we heard was Dow 20,000; now at these lows we're hearing Dow 800 or
400 or worse. Whatever, but the media loves to publish the ridiculous. As for
the stated long-term pattern being broken -- that's only his perspective. Anyone
can draw lines form different time perspectives from any different chart types
and come up with completely different results. So, one man's gloom is another
man's excitement. This leads me to the second point.
The argument is raised that the bottom is nowhere in sight because too many
people are standing up to buy. The implication is that there is too much
optimism for a rally, but doesn't too many people standing up to buy constitute
grounds for a rally? I think his remarks are biased in support of his bearish
view. As for mutual funds needing to pile up cash, all I've been heard for the
last several months is how much cash is sitting on the sidelines waiting to come
in. Well, who has all of this cash? Also, isn't it a known fact that companies
almost always get it right when it comes to buying and selling there own stock;
and as of late, they are buyers of their own stock.
This proves that we can all have our own views, but markets will do what they
will regardless of all the lines we draw on charts and the history and
fundamentals we corrupt to support our preconceived views. What I'm basically
saying is that humans are primarily emotional and their views (which most
confuse with analysis) are based on current sentiment.
As for the chart I've posted, it shows the SPX bounced off the 50% correction
level at 1,000 (blue line) and now rests above it. This to me is positive. After
13 months of declines (which is a good Fib turning point) we still haven't had
much of a counter reaction to a five year run that topped all historical
records. As a comparison , look at any NASD chart and you'll see the sharp drops
the stocks took when people really wanted to get out . For the symmetry lovers,
you'll see there is no comparison with those patterns and the SPX or the Dow.
With the chart I've attached we see a 3-year bottom-to-bottom that I view as
symmetry; however, at the '98 bottom there was a nice run higher in the Oct thru
Dec period. I expect the same to occur now, but I'll compare the next three
month thrust with the '98 period to determine the depth of its strength. A
thrust that isn't as powerful will reflect on my view that a head-and-shoulder
pattern is developing and we are currently seeing the right shoulder evolving.
In several months the neckline will be retested; a failure will spell doom, but
I don't think that will happen.
I'm sorry for this lengthy reply, but it's tough to develop a cogent argument
without being wordy.
Ralph
Gary Funck wrote:
> Another opinion, from this week's Barrons ("Sizing Up Small Caps"):
>
> But the break last year in the long-term trend line in place since '94, is a
> particularly ominous sign. The S&P 500 is currently testing the October 1998
> low of 923.32, and he now believes will break through that level and, sometime
> next year, test support at 817.67. But even if the test of the 1998 low is
> temporarily successful, he sees "no validity for a renewed bull phase." The
> break in the '94 trend line is the kind that suggests a secular, not a
> cyclical, bear market.
>
> That's not to say he rules out short-term rallies -- in fact, he suggested one
> was in the offing in his Monday missive, that the market looked very
> "oversold." But short-term moves are pretty much a matter of a roll of the
> dice. A quick strike into Afghanistan and the capture of Osama bin Laden could
> trigger a mighty "short-covering rally" that could send the Dow up 1,000
> points or so, he suggests.
>
> However, the longer-term trend, in Newman's view, is that we are "in a bear
> market and likely the worst of our lifetime." The bottom is nowhere in sight,
> he argues, "because too many stand ready to buy. We need to see strategists
> tone down their bullish stance and raise cash. We need to see mutual funds
> pile up cash. We need to see the public sour on the long-term mantra to invest
> and go to cash." Only a massive buildup of cash, he asserts, can provide the
> firepower for a broad advance.
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