Sunday, October 16, 2011

State of the market, October 16Th.

If you are feeling a bit exhausted and whipsawed as of late, you are not alone. Thank goodness for the weekend! We had an impressive week that saw the Dow rise 5%, the S&P 500 lift 6% and the Nasdaq gain 7.6%, but the solid showing does not feel all that great when we have had so many wildly up and wildly down days and weeks over the past two months. A 5% daily gain loses its luster quickly when the market is down 4.5% the next. It seems as though the stock market is driven only by fear, reassurance, fear, denial, fear, and finally a whole lot of positive-sounding press releases from Central banks all over the world.

This strange scenario becomes even stranger when you try to really figure out just who is bailing out whom over in the EU. There are “official” economic charts and graphs available online that attempt to describe the complexities in Europe, and then there are lampoon-style sites that have charts that look similar, but still make some serious fun of how crazily complicated it is over there. How can any EU banker or politician ever make sense of anything when the parodies of a bad situation seem as real as the “real” situation?

So, what is “real” right now is hard to decipher. The reason for all of the stock market gyrations we have had over the past couple months is because “the market” knows things are really bad, but it is unable to figure out how the longer-term variables play out. This leads to the day-to-day overreactions. It is a day-to-day battle between the Central banks and the “reality” they seem to ignore, postpone, and never confront. That is why the “can gets kicked down the road” endlessly. Politicians and Central bankers are far different than entrepreneurs, who actually CREATE jobs, and we are now painfully learning that we need a whole lot more entrepreneurs than bureaucrats if we are to get out of this mess.

On a different and technical note, the S&P 500 put in a loose, double top pattern in July around 1350, before that fade late in the month, which led to the plunge downward into early August. Since bottoming around 1120 several times in early August we have had nothing but wild rollercoaster rides up and down ever since. Amazingly enough, the S&P 500 closed out at a two-month high Friday, and it had many of the exhausted bulls thinking that maybe, just maybe, this could be a great time for a final turn from what has been a high-speed, 20% bear market decline.

It would definitely be a great time for a larger, upside run, but we historically hear of rallies from October lows, not rallies off October highs. Many strategists are still scratching their heads over the recent strength in stocks, but then again, there are quite a few market “seers” saying that fear levels and pessimism had become so high that a change was definitely in the air. Again, the supposed pros are still divided on the intermediate market environment, and the broader investor world is divided as well. The volatility we have seen shows that it is a tough and important juncture for stocks, so we will just have to wait and see what unfolds.

Meanwhile, across the pond, Germany and France had said that the end of the month was their deadline for coming to some sort of agreement on the Greek bailout, but we all know how that can be “extended and pretended” at a moment’s notice. Look for any “real” reform to likely be pushed into 2012 or later, after the current politicians are retired, reelected, or lobbyists or some sort of a combination of the three. The Greek card is the Joker Card right now, and it will be interesting to see how this EU deal concludes. The longer they wait, (the buzz goes) the more painful the Day of Reckoning will be, and the worse the situation gets, the less politicians want to address it. And, that is worrisome!

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