We Have a New Spokesperson
Well, I apologize for not updating earlier, but the holiday season is busy. As has the first market session of the new year. But more about that later... First things first!
The title of today's misguided rant was inspired by this article concerning a famous actress' "investment" choices. The basic story is that in that auspicious year of 1999, this certain thespian went bankrupt! Now we hear about her touting the superiority of real estate over stocks! What gall! What hubris! What nerve. (Sorry, I just ran out of exclamation points.) Now, if that isn't an indication of the top being in place, I am not sure that we will ever see a clearer indicator.
Now, for today's impressive rally! (I am following the modern trend and borrowing a few exclamation points!) The basic guideline is that the year goes as January goes and January goes as the first week goes. And especially in a holiday-shortened week, the week is likely to go as the first trading day. But another rule of thumb is that Friday's action is more important than Monday's. So we will have to wait and see how Friday and later the first month of the year goes, but my concern is that this rally may not be sustained. Volume and breadth seemed quite good for this first trading day of 2006, so we should respect the early indications of strength. But the action of the last quarter of 2005 had the earmarks of a terminal phase of a move, with volume that was medicore, occasional days of distribution and narrow leadership. It is not surprising that we should see a reaction, especially when we touched key levels of support at 1635 on the Nasdaq 100 and 1258 on the S&P 500. The important test will be whether this move can take out the recent highs, which happen to also be near pretty key levels. As usual, I have my doubts, as I have a feeling that this rally will not survive this week, but it is best to wait and see. The first key test is Friday. If we rally strongly to end the week, maybe this is the real deal, but if as I suspect, the market experiences softness to end the week, then I will be vindicated and the time to short this market will be at hand. Meanwhile, keep the powder dry and possibly do a little selective, opportunistic selling.
Finally, the most worrisome development is the action in the oil market (and the actions of the Russians, who are bound to flex some muscle after being pushed around in the "Orange Revolution"). This is worrisome in light of the consensus that the Fed is almost finished pushing up interest rates, while long-term rates remain well-behaved. But what if circumstances force the Fed to continue raising rates longer than anyone expects. That is exactly what happened last year and I am taking the contrary opinion that this is exactly what will happen this year. This will be the test of the new Fed Chief and my premature opinion is that it is a trial in which he will be found wanting. Alas, with the conditions WE have created (yes, I am blaming you and I), it is unlikely that any mere mortal could master the balancing act required to bring the global economic distortions which currently exist back into equilibrium.
The title of today's misguided rant was inspired by this article concerning a famous actress' "investment" choices. The basic story is that in that auspicious year of 1999, this certain thespian went bankrupt! Now we hear about her touting the superiority of real estate over stocks! What gall! What hubris! What nerve. (Sorry, I just ran out of exclamation points.) Now, if that isn't an indication of the top being in place, I am not sure that we will ever see a clearer indicator.
Now, for today's impressive rally! (I am following the modern trend and borrowing a few exclamation points!) The basic guideline is that the year goes as January goes and January goes as the first week goes. And especially in a holiday-shortened week, the week is likely to go as the first trading day. But another rule of thumb is that Friday's action is more important than Monday's. So we will have to wait and see how Friday and later the first month of the year goes, but my concern is that this rally may not be sustained. Volume and breadth seemed quite good for this first trading day of 2006, so we should respect the early indications of strength. But the action of the last quarter of 2005 had the earmarks of a terminal phase of a move, with volume that was medicore, occasional days of distribution and narrow leadership. It is not surprising that we should see a reaction, especially when we touched key levels of support at 1635 on the Nasdaq 100 and 1258 on the S&P 500. The important test will be whether this move can take out the recent highs, which happen to also be near pretty key levels. As usual, I have my doubts, as I have a feeling that this rally will not survive this week, but it is best to wait and see. The first key test is Friday. If we rally strongly to end the week, maybe this is the real deal, but if as I suspect, the market experiences softness to end the week, then I will be vindicated and the time to short this market will be at hand. Meanwhile, keep the powder dry and possibly do a little selective, opportunistic selling.
Finally, the most worrisome development is the action in the oil market (and the actions of the Russians, who are bound to flex some muscle after being pushed around in the "Orange Revolution"). This is worrisome in light of the consensus that the Fed is almost finished pushing up interest rates, while long-term rates remain well-behaved. But what if circumstances force the Fed to continue raising rates longer than anyone expects. That is exactly what happened last year and I am taking the contrary opinion that this is exactly what will happen this year. This will be the test of the new Fed Chief and my premature opinion is that it is a trial in which he will be found wanting. Alas, with the conditions WE have created (yes, I am blaming you and I), it is unlikely that any mere mortal could master the balancing act required to bring the global economic distortions which currently exist back into equilibrium.
posted by Matt Butler at 2:08 PM
0 Comments:
Post a Comment
<< Home