Bullishness Abounds

Most of the world, including us, were a bit surprised by the PPI numbers that came out an hour before the market opened.  The Labor Department reported that producer prices rose a modest 0.1% but the closely watched “core” rate was a negative number, -0.3%.  This was all the market needed to say the Fed would not raise rates, even though they had threatened that last week.

The current “Fed is done” rally follows about 50 others just like it.  Our comments in the last post considered that the market had failed to best the high water marks made since the jobs’ report on August 4th.  So, here we are with the market as bullish as it can be, and we barely broke above the jobs’ report opening prices.  The market advanced today on what we consider to be very light volume for a move like this.  Yes, most of it was up volume but the total was light.

We looked back to the same period four years ago to see if there are any similarities with now.  Back then the market had peaked on March 19, 2002 at a level of 10,635 and dropped to a low of 7,286 at the close on October 9, 2002.  This price change represents nearly a 35% drop in a little over six months.  This year the Dow peaked on May 10th at 11,642 and so far the lowest we have seen there is 10,706.  If 2002 is any standard, we should be looking at a Dow down another 25% or so taking us to around 8,000.  On the surface 8,000 seems a bit farfetched, but in 2002 7,286 seemed farfetched, too.

Our bearish position may not bear fruit of the 25% nature but we continue to be confident that the market is going down into late September or longer.  Days like Tuesday remind us that the market is trying to make people confident of the bull.  We don’t believe it’s that easy to make the market go up.  And, if you look at the incredible bullishness out there currently, you would think we were going to new highs every day.  That is simply not the case, as we’ve had trouble getting back to the June Lows let alone the May highs.

Tuesday’s PPI signaled that the Fed could stand pat on interest rates.  Does that mean that Wednesday’s CPI will give the same message?  Up until early this year the market had been on a three year up move, we would call it corrective, not a bull market, since it didn’t get close to the highs set back in the year 2000 market.  The Fed has raised interest rates during that period of time and the market has been waiting for them to Pause—which they did last week.  There has been extremely good interest rate news the past few weeks but still the market has trouble getting going.  We think that is because the market wants to go Down.

The price move on the day looked powerful to the casual bystanders.  Those are the people that “want” the market to go up because they are investing in it.  The market traded light volume for this type of move and the prices should not hold.  

The 1550 that we thought could happen in the NDX, NASDAQ 100, is looking pretty close again.  We would never have waited until this day because we had been focused on the jobs’ report and Fed Pausing meeting period for our expected high point.  It is interesting to see that 1550 come into view again because if you recall that was a 50% retracement of a prior high.  We’re still not back to Half way and bullishness abounds!!!  

Dow Industrials:  11,230.26  +132.39
QQQQ:  37.70
RYVNX:   22.73
RYAIX:  24.67
RYCWX:  42.50
TLT:  85.92
BEGBX:  13.57