Richard Russell has come down from the mountain with new tablets inscripted with the commands of the Dow Theory gods, and has declared that the great bull run has only taken a pause. He states in this week's Barrons:
He begins the article (1) with this gem: "THE STOCK MARKET IS A discounting mechanism, the closest thing we have to a crystal ball."
You know that I'll have none of that (and it may just be a senseless bias, for which I assume full responsibility!). To my eye, the market has prescience like a teenage boy has restraint. The market was not prescient about the dot com bubble, nor did it accurately forecast the current issues with the credit crisis or retail (selective though it may be) slowdown. Rather, the market seems to push various themes to the edge of the world, then fearing falling over the edge, races back to the comfort of firmer footing. It looks for new themes or, finding none, decides that the other theme has not yet been spent and perhaps its fear was premature and a new advance to the "edge" is made.
I don't find that the bond market is particularly prescient either. The bond market was wrong for a good long while regarding the direction and magnitude of interest rate moves. And, as a safe harbor like gold, it seems to me to be of a fear indicator as much as anything.
It is these observations that have formulated my bias--and I don't think that my observations are wrong. And, I know that the "N" of observations for Russell's purported empiricism regarding Dow Theory is not large enough to derive a sound conclusion regarding any sort of pattern in which we can take comfort. I don't write any of this to sound derisive regarding Russell's conclusion, but rather to share my particular view that the search for incontrovertible signals in the market is a futile one. Rather, I'm going to reduce all market pundits to a category of cooks in a kitchen, each working on his/her "special, secret, exclusive" recipe for grits. The singular test of success is not so much how it tastes but whether or not if the final product sticks when flung against the wall of expectations.
Outside of the N= too-small- a-number-to-build-a-case, I do have two additional, niggling issues with Dow Theory.
It does appear to me that utilities are finding some footing. I own some KEP and TE. FPL has a nice looking chart. Also, China and Brazil seem to be coming to life as well. You might want to take a look at PWRD and NTES--two Chinese gaming stocks that are behaving strongly. Here are some other names whose charts look interesting to me:
CHA, CHU, CN, COGO, LDK, LFC, FUQI, HMIN, MR, JRJC, LONG
Although I've not updated the South American charts, if you haven't already done so, you might wish to browse through. See tab at the top. These are the NYSE-listed South American Stocks.
One thing I know for sure is this: Everyday the market is going to make some prognosticator look foolish. I do believe that the general bias of the market is up. That being said, I believ that there is a boat load of money and a boat load of shorts that will offer this market some dry kindling for some rocket combustion. As we've observed here in our conversations, lack of news can sometimes be a safe space that allows for an advance. With earnings largely out, there is no real earnings catalyst bad news to thwart the market.
While I do not think that the problems are over and I do not see where our economic recovery is going to reside, for the moment there appears to be an "all clear". And it will be all clear until it is clear that it isn't....
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My Dad came home from the hospital yesterday. I did an early dog run from Emporia to Richmond. The drop off in Richmond is about 5 miles from my Dad's house (I live about 26 miles away from that). It was good to see him out of his gown and in his regular clothes. I went home and later returned with dinner so my SM could get a respite. She's been dutiful in her attention to my Dad during this stressful period.
(1) e-mail me if you want a copy of the article.
A Rally With Serious Muscle
By RICHARD RUSSELL
A plethora of technical indicators tells me that the great bull market
that began in the early 1980s is still intact, and that new highs are
coming, maybe not immediately, but in the weeks and months ahead.
He begins the article (1) with this gem: "THE STOCK MARKET IS A discounting mechanism, the closest thing we have to a crystal ball."
You know that I'll have none of that (and it may just be a senseless bias, for which I assume full responsibility!). To my eye, the market has prescience like a teenage boy has restraint. The market was not prescient about the dot com bubble, nor did it accurately forecast the current issues with the credit crisis or retail (selective though it may be) slowdown. Rather, the market seems to push various themes to the edge of the world, then fearing falling over the edge, races back to the comfort of firmer footing. It looks for new themes or, finding none, decides that the other theme has not yet been spent and perhaps its fear was premature and a new advance to the "edge" is made.
I don't find that the bond market is particularly prescient either. The bond market was wrong for a good long while regarding the direction and magnitude of interest rate moves. And, as a safe harbor like gold, it seems to me to be of a fear indicator as much as anything.
It is these observations that have formulated my bias--and I don't think that my observations are wrong. And, I know that the "N" of observations for Russell's purported empiricism regarding Dow Theory is not large enough to derive a sound conclusion regarding any sort of pattern in which we can take comfort. I don't write any of this to sound derisive regarding Russell's conclusion, but rather to share my particular view that the search for incontrovertible signals in the market is a futile one. Rather, I'm going to reduce all market pundits to a category of cooks in a kitchen, each working on his/her "special, secret, exclusive" recipe for grits. The singular test of success is not so much how it tastes but whether or not if the final product sticks when flung against the wall of expectations.
Outside of the N= too-small- a-number-to-build-a-case, I do have two additional, niggling issues with Dow Theory.
- Niggling Issue #1: How one can use Dow Theory when the composition of both the Transports and the DOW has changed over the years?
- Niggling Issue #2: The Transports did not confirm the last rally until very late, so why place much stock in their now confirming?
It does appear to me that utilities are finding some footing. I own some KEP and TE. FPL has a nice looking chart. Also, China and Brazil seem to be coming to life as well. You might want to take a look at PWRD and NTES--two Chinese gaming stocks that are behaving strongly. Here are some other names whose charts look interesting to me:
CHA, CHU, CN, COGO, LDK, LFC, FUQI, HMIN, MR, JRJC, LONG
Although I've not updated the South American charts, if you haven't already done so, you might wish to browse through. See tab at the top. These are the NYSE-listed South American Stocks.
One thing I know for sure is this: Everyday the market is going to make some prognosticator look foolish. I do believe that the general bias of the market is up. That being said, I believ that there is a boat load of money and a boat load of shorts that will offer this market some dry kindling for some rocket combustion. As we've observed here in our conversations, lack of news can sometimes be a safe space that allows for an advance. With earnings largely out, there is no real earnings catalyst bad news to thwart the market.
While I do not think that the problems are over and I do not see where our economic recovery is going to reside, for the moment there appears to be an "all clear". And it will be all clear until it is clear that it isn't....
-----------------------------------------------------------------------------------------
My Dad came home from the hospital yesterday. I did an early dog run from Emporia to Richmond. The drop off in Richmond is about 5 miles from my Dad's house (I live about 26 miles away from that). It was good to see him out of his gown and in his regular clothes. I went home and later returned with dinner so my SM could get a respite. She's been dutiful in her attention to my Dad during this stressful period.
(1) e-mail me if you want a copy of the article.
3 comments:
Leisa
Glad to hear your father's recovery is progressing well - that is good news indeed.
And your picture of TA Kitty 'reading the tape' is a hoot.
TA Kitty probably has just as good a read on the market as all the other prognosticators.
I mean take Russell: at 14000 last year he was raving about the market breaking out - it then collapsed to 11500 - now back to 13000 he is raving again.
He is using a pure 'reactive' approach - assuming large trends are in play.
But DOW theory and TA could prove useless in a Trading range market.
The DOW could trade between 15000 and 10000 for years - with the likes of Russell et al turning bullish at the tops and the bears of course shorting into and out of the bottoms providing the 'rocket fuel' as you call it.
The one thing I find so amusing lately is that everyone - I mean everyone (especially in the media) is so desperate for a rally.
I mean it is embarrassing to see all these people - including Buffet - being paraded in front of TV cameras - telling the public the worst is over and to jump back in.
IMHO the markets are broken – simply broken.
There is too much intervention now.
Market behavior is going to be very very unpredictable.
We could see new market highs with deteriorating economic conditions.
We could see some sectors continue to make new market lows even as the major indices don't.
We could see sharp sell offs that continue to catch people off guard.
With 100's of billions of money being thrown around like chump change by the Central banks - things have become a bit of a joke – have they not?
How can anyone really value anything anymore - with all this money floating around, things which have terrible fundamentals - are being 'held up' by bizarre non-capitalist interventions.
Leisa it's no wonder, as you aptly point out, that the market can't correctly discount anything - I mean how can it?- All the money flooding in just ‘masks’ the market's ability to discount fundamentals.
More and more this is looking like a casino - the Central Bankers should be ashamed of themselves IMHO.
And I seriously doubt we will ever get 'back to basics' for a long long time - until some real 'Black Swan' event finally puts an end to the Central Bankers fantasies.
But betting on a Black Swan event will make most people broke - the house usually wins ....
Greed always triumphs (in peoples minds at least) – until it doesn’t!
Then there will be a true day of reckoning – that no amount of money printing will be able to fix.
But until then – one should expect ‘the game’ to continue. And that traders and investors will continue to want to ‘play’ the game of Greed and Fear.
And that Wall Street will continue it’s merry ways…
Still there are other things in life…
Health, family, spirituality, walks out in nature etc… are certainly more important than the ‘stock market game’ .
‘nice
So glad to hear that your father is home, in his own clothes and eating Leisa-cooked meals.
G/S
PS: And thanks for your thoughts re: the market.
the composition of the dow is a valid critique. i don't understand how pfizer, disney, and mcdonald's qualify as industrial companies.
i think russell is just bored with the market and is trying to find ways to get free publicity for his newsletter. dow 17000 has a better ring to it than dow 11000.
i hope your father and son are doing ok. my thoughts are with them...
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