Thursday, June 28, 2007

More Risk. Ahh, The Correction Is Over Said The Bull.

With the rally yesterday the bulls are still quite convinced of their continued glory. The Fed's decision to leave rates unchanged was just announced and the bulls are off to the races again. Complacency has reached a level so high that it's almost unbelievable. In a bizarre form of reality, I'm reliving 1999 and 2000 just a few short years later. Oh, how the fools have short memories.

I read the streaming chorus of cheers from the 1999 cheerleaders and wonder how people can be duped again. Westbury, Cohen, Kudlow and on and on. I see sentiment prognosticators using tomfoolery as their rationale for being bullish. And, I see relative newcomers who use their absurd analysis of the last few decades to justify why this is a reasonably valued to undervalued equity market. And they all chastise those who point to extreme risk in the markets. I find it ironic that those warning caution, even those who are bullish the majority of the time, are always laughed off of the stage until after the fact. Woe be to perma-bulls. For in the end, they will be the fools. I now walk alone. I now witness stupidity on a scale so enormous that any chance of a reasonable outcome is likely lost.

Below is a chart of the S&P from the start of this bull market in October of 2002. I want to see an actual crossover of the black doodad for a possible change in trend. Each time we've had a successful downward crossover since the bull market began, we've had a correction of some sorts. While it looks like small price movements on the chart, actually, the corrections have been relatively substantial at times. 15-40% in the Nasdaq, Russell 2000, semiconductors, commodities, etc. Typically about 20% for the Nasdaq. Nothing quite so severe in the S&P. It's interesting to note that we have gone a very long time without a meaningful correction in the S&P. Longer than the lead up to 1929 which was near the longest in history. This at a time when I've seen irrationally exuberant readings from many data points I never thought possible.

"In the fields of observation, chance favors only the prepared mind."
--Louis Pasteur


Click on the chart for a larger image
posted by TimingLogic at 2:28 PM

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