Zbigniew Piekarski promises to jump out a window, but only if the markets go up
"There may be a recession in stock prices, but not anything in the nature of a crash." - Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929 (Dow 369.8 - Dow on 8th July 1932 - 41.2)
The bear camp is a scary and lonely place as the market rolls higher and higher despite lingering divergences and overbought technical conditions. Holding onto a short position as the market slowly grinds upwards is stomach churning. You begin to doubt yourself, you lose your libido and you turn to religion. Sometimes shorts are their own worst enema.
This market is very reminiscent of late 1999. There seems to be a compelling reason to get back into equities and play them "long" again. Even seasoned market professionals are beginning to chase after profits and are investing into beaten-down stocks. Maybe they are right or maybe they are wrong.
I will hang on until the line in the sand is crossed by all three indexes - the DJIA at 9,050; the S&P 500 at 980; and the Nasdaq at 1650. If all three close above their respective highs for three days in the next two weeks then I am chucking myself out of my window on the 24th floor, for I would have committed a cardinal error.
I do have an explanation. Corrective rallies are notoriously difficult to call as there are 11 patterns that they can take. This one morphed a couple of times and became very complex. On Monday May 19, the Dow fell to around 8,500, surrendering 39 days of gains and indicating that the party was over. But I had forgotten about the drunks. They were determined to party on, this time on heroin.
Whether they succeed or not is merely academic, as the rally is clearly corrective in nature and is in opposition to the larger trend. New highs will merely delay the onset of the third wave down.
You may wonder why I am so certain. The reason is simple. I adhere to natural laws and the most natural and most basic laws are the ones relating to procreation.
As most of us know the anticipation of a sexual encounter may be far more potent than the event itself. The percentage of bulls has risen to an all time high, over 70 percent, eclipsing the previous record set in 1987 just before the 1987 crash. Despite three straight down years and a loss of between 25 percent and 70 percent in various stock indexes, advisors are more bullish than they were in January-March 2000.
Individual investors are also bullish. The American Association of Individual Investors survey hit a five-week average of 55 percent bullish on May 15. During the 16-year history of the survey this level was registered in January 2000, September 2000, May 2001 and January 2002. In each case just before a substantial decline.
This anticipation of an earth-trembling orgasm is allied with an increasing frequency of climaxes. These are buying climaxes and, as such, are signs of distribution. A buying climax occurs when a stock makes a new 52-week high and then closes down for the week. It indicates that smart money is selling to suckers, and not accumulating. Five of the past seven weeks have generated 100 or more of such climaxes - another record.
You would think that under such circumstances premature ejaculation would be an impossibility. You would be wrong. On Monday May 26, James K. Glassman wrote an article for The Guardian. Glassman, along with Kevin A Hassett, released a book entitled Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market in November 2000. After being out of the public eye for two years, he reappears and still maintains that stocks are being hurt by outside, one-off, non-structural transitory factors and that once this weak patch has passed the DJIA will reach 36,000. In this article, he actually states that it will reach this magic number on May 25, 2013. Note this in your diary. It will be the first time in history that equity markets will be open on a Saturday.
The simple reason why markets are moving is that central bankers are creating vast quantities of credit. Interest rates are at record lows, debt is climbing at all levels of society and the value of any and all assets are climbing. Bubbles are forming in equity, bond and property markets.
As a disciple of Elliott and follower of R.R. Prechter, I believe that what we are experiencing at this moment is a second-wave peak within a five-wave impulse wave decline. The whole point of second waves is to suck investors back into the market before decimating their savings. The next decline should be a historic thrust that affects all comers and all corners of the market.
This cataclysmic event is presaged by the last transatlantic flight of the French Concorde on the last weekend in May. Conceived in the heady days of the Entente Cordialle, it became a lasting monument to Charles de Gaulle, who wanted to end American domination of the skies.
Its sleek good looks, long nose, incredible speeds (three-and-a-half hours from Paris or London to the east coast of the United States) and expensive fares (round-trip fare was about $9000 at the peak) made it the perfect mode of transport for $7000-an-hour supermodels and chief executives of Elf Aquitaine (the French government's institutionalized slush fund). The Concorde was one of only two examples of Franco-British collaboration, the other being the Channel Tunnel, another loss-making proposition.
It is interesting to note that the TU-144, nicknamed the "Konkordski," based on plans stolen by the KGB, crashed at the Paris Air Show of 1973 and never became a viable alternative.
On the WSE: With the Pope looking after matters spiritual and Bush and Blair matters temporal, the WSE can only rise to the occasion. Until, that is, the gullible realize that most of what is listed on the WSE is used to subsidize resident political parties and not to add to shareholder value.
"It's all about sound bites, deluding the people, pandering to the lowest common denominator. I didn't adjust (in Washington) and I'm not going to start now." - Mr. Paul O'Neill, former treasury secretary under President Bush. Thus the price of honesty.
