Retail Stampede, Retail Tragedy

This is not a post about how retail stocks are going to stampede higher based on the early indications of Black Friday sales. No, this is a much more somber post about a tragedy that occurred here on Long Island (NYC suburb) this morning.

Wal-Mart greeter killed by shopper stampede (Newsday)
A throng of shoppers physically broke down the doors and pushed their way into the store killing the 34-year old man at the Green Acres Mall in Valley Stream, Nassau police said.

Not only that, four shoppers, including a pregnant woman, were taken to the hospital for observation.

Is this what we are all about? When has going shopping for bargains at 4 am - yes four in the morning - turned into the national pastime? We all should be ashamed, especially since it was only hours earlier we celebrated a great tradition of cooperation (that's the real story behind Thanksgiving) and family.

My condolences to the man's family.

The Market Has Already Discounted It

They say that the stock market is a discounting mechanism and that means it falls well ahead of the bad news. I usually trot out my chart of Enron and point out that it dropped from 90 to 60 and then half of that before the first scandals were made public. The market knew something was wrong. No, not scandal but something. People were selling a bit more aggressively than they were buying and that was enough to send prices lower.

Here is a head line from recent news:

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit

That's not million with an M or billion with a B. That's trillion with a T. T as in toast. T as in tremendous. T as in how much gosh dang (this is a family blog) money can the government come up with before they need a bailout?

No wonder the inflationistas are singing. But that's not stock prices. Here is a counter argument made by Alan Newman of the Crosscurrents newsletter:

The crash we have already experienced discounted much of what you now believe is occurring.

Hmmmm. That's an argument that we will NOT be seeing Dow 6000. I have a different feeling about the stock market these days and while it probably won't last it does seem that we can, as I wrote in the newsletter this morning, make a little cash to spend on the holidays.

Just be ready for another bear slide just when everyone breathes that massive sigh of relief.

Misc.

Goldmember:

• "Gold, I love gold"

In the column today I noted that gold was firm despite the dollar being strong through last week. Something is up and perhaps it is the realization that trillions in bailout bucks cannot be good for the dollar. Or the yen. Or the pound. Or the YouRo. As gold bug Jim Sinclair says, gold is a currency, too.

Warren Buffett quote posted to a discussion board by John Bollinger:

• "Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."
  

A bit of chart analysis by blogger extraordinaire, Barry Ritholtz:

• The Dow scored a Wyckoff Spring last week by trading below its trading range and immediately trading back up within.

I call it a false breakdown and a somewhat bullish event. Why somewhat? The cheese (Dow) stands alone. No other major has the same formation.

Jerry Costello, a trader posting to a different chat board:

• Lining the Nasdaq of today up with the depression era Dow suggests that the market is not going to fall apart. The 1929 Dow peak lines up with the 2000 Nazzie peak. See comment number 2 in this blog post.

Rob Hanna in his Quantifiable Edges blog:

• There is no statistical proof of market strength Thankgiving week.
  

I say, let's be thankful that we are still standing after this bear market. Any day spent above ground is a great day. Happy Thanksgiving, everybody. While an official American celebration, we can all appreciate the concepts it is supposed to represent. And no, not a sale on autos and ab machines.

More Humor

Colleague Dave Steckler posted this list of funnies in several chat rooms yesterday. Where he got them I don't know.

1. What is the one thing Wall St and the Olympics have in common? Synchronized diving.

2. I went to buy a toaster and it came with a bank.

3. Overheard in a City bar: 'This credit crunch is worse than a divorce. I've lost half my net worth and I still have a wife.

4. What's the capital of Iceland? About $3.50.

5. What is the difference between an investment banker and a pigeon? A pigeon can still make a deposit on a BMW.

6. What is the difference between an investment banker and a large pizza? The pizza can still feed a family of four.

7. What's the definition of optimism? An investment banker who irons 5 shirts on a Sunday night.

8. I tried to make a withdrawal from an ATM and the machine said 'Insufficient Funds'. I wasn't sure if it meant for me or the bank.

9. I lent my friend $20 last week and according to the market I qualify as the country's 4th largest lender.

10. Broker to Client: "I've got good news - you'll be paying 40% less in fees for the foreseeable future!"

11. I wrote a check for $100 to my friend but he never got it; the check was good, the bank bounced.

12. The crisis is so bad, Bank ATM's now have slot machines.

How to Spot a Bottom

I wrote an article for a magazine in August that was never published covering sector rotation at the bottom. It clearly did not anticipate the slow motion market crash that followed but some of the concepts in there might still be useful to investors.

Click here to read it. Again, a lot has changed - specifically a turn for the worse in the financial sector - so please bring your grain of salt and leave your tomatoes (for hurling at me) at home.

Double Top Spoos

In the last post, someone commented on the apparent huge double top in the S$P 500, affectionately known as "Spoos" for the September futures symbol SPU. I will resist digressing into some of the other tradable names I have used over my career.

Anyway, the jumbo pattern on monthly charts is clear.

First, this is not a double top pattern until it breaks the support level at 768. But let's say it does. Where would we measure the target? After all, targets are supposed to be the height of the pattern projected down from the break.

Do that here and get a negative 37. Someone in another blog commented that a negative price might actually be real given the mess our mortgage friends got us into but that is another topic.

Show of hands - can spoos go negative? Of course not. Absolute support is at zero and if we get there who will care about the financial system? I'll want my guns and bottled water and a fortified, self contained mountain top cabin.

When measuring downside targets, especially for large patterns, I switch to log scaled charts and project physical distance, not price, down from the break point.

This is still apocalyptic but at least it has a chance to be valid. A drop like this one would erase 21 years of gains and bring spoos to their August 1987 peak.

Show of hands - who believes that a breakdown below October lows would kick off such a plunge?

For those of you who raised your hands, go change your underwear, have a beer and think about limitations on how "macro" technical patterns can get. I am a hardcore technical analyst but even I would not think that we can actually measure a decade long pattern of that magnitude and get any sort of reliable pattern projection out of it. Short-term, this stuff works like a charm. Long, long-term? No way.

But for those who want some real refuting evidence, how about this - the S&P 500 is the only major index to sport a possible double top. So would it be possible for this index to plummet while the other have no standalone reason to do the same?

In the stock market, we are blessed with enough ways to slice and dice things to make our own infomercial. Buy it now! Only three easy payments of $19.99! But because we have so many indices we must - repeat must - look at more than one of them to make macro-sized forecasts. The Nasdaq has not even come close to its 2002 low. Neither has the Russell 2000 and for the latter there is huge support awaiting.

No, I am not saying anything about where the bottom may or may not be. I am just saying that measuring a possible double top pattern in the S&P 500 is the wrong move. Even if we see a new low, it will not be the end of world as we know it.

A Contrarian's Contrarian

It seems that everyone fancies him/herself as a contrarian these days. But what does that really mean?

Contrarian thinking doesn't just mean doing the opposite of the next guy (sorry, no more gender recognition). It means going against the crowd and that means that there actually has to be a crowd.

So is it contrarian to be bullish now? Not really as there are too many people thinking the bottom is in. But much to the chagrin of many, just because people think a bottom is in does NOT mean that it is NOT in. EVERYBODY would have to think that for a true contrarian to start selling the market.

So that is why I keep referencing basing process and not a trading range continuation pattern in a bear market. In today's column, I point out yet another sector with a lot of promise. In the newsletter I point out all of the positive technical evidence I see, despite only a few up-days in the last many. I even had a bunch of stocks this morning for the heck of it that looked rather good.

Of course, all of it depends on more normal market analysis and that is not quite the case in today's Abby Normal (Thanks, Eye-gor) market. But when it does start to calm, shouldn't you have a list of candidates to buy so you can get in a little earlier than the next guy?

Contrarian exercise - Which sector is getting the rottenest news right now? C'mon all you contrarians out there.

The Boat is Listing

Contrarians tell us that when everybody piles on to one side of a trade it is time to go the other way. The "boat" of the market listed way to the bearish side yesterday morning and it was no wonder - the news was absolutely horrible. Intel troubles, GM failing, economy faltering, credit crisis, bailouts, housing crisis, worse than expected retail sales, worse than expected job losses, and on and on.

Stocks undercut their October lows and it looked like the bottom had fallen out.

Yet in the early afternoon things suddenly turned around. Off the races! Was it short covering? A rebound after running stops?

Look at this screen capture from MarketWatch.com from this morning's newsletter. You'll prbably have to click it to read the little headlines.


I did not circle everything as I did in the newsletter but if you have a moment and some strong reading glasses peruse the entire page. Every single bit of news was bad except for the headline. Everything. OMG, the end of civilization as we know it.

And then the Dow rallies 900 points.

When everybody is on one side of the boat, go to the other side. It is a lot drier and you can see better, too.

Please be Wrong

I really hope my colleague David Waggoner is wrong but so far his Elliott Wave mapping of the stock market has been spot on. Here is an excerpt from his current report sent to his subscribers at The Market Detective.

What I hope you can see, and you might need to click on the chart to blow it up to a more readable size, is a Wave 4 triangle in a bear market trend. Holy #$%^ Michael, speak English.

Elliott Wave theory says that primary trends move in 5 waves. A corrective trend moves in 3 waves. The primary trend now is down so there should be 5 of them - three down and two corrective. I am not going to get into an argument over whether the current bear is a 3-wave of 5-wave affair but Elliotticians say that in either case a corrective wave against the trend comes between two waves in the direction of the trend.

The pattern seen in the chart is a triangle pattern and accordingly that would be a correction in an ongoing bear market. In other words, there is more downside ahead.

Fortunately, this analysis give us one more little rally before the day of reckoning.

Do I believe this? I won't say here or my subscribers would have a cow. But if this pattern does break down it would not be a good thing.

Perspective

In today's regular Friday morning investment meeting, my mutual fund management partners and I discussed how to educate long-term investors and manage expectations (www.EASfunds.com). How many of you, before the tech wreck, were investing before 1980? My guess is not many, either because of your youthful age or the fact that stock ownership back then was nothing like it is today.

What that means is that most of us believe that the stock market is the best place to invest if you have a long-term horizon. Well, there is long and there is long.

Last week, I posted two charts showing multi-decade trends in the market (The Decade Ahead). Looking at a century of data is nothing new for analysts but my fellow fund manager Rob Isbitts (Worth Magazine top 100 investment advisers several years running, by the way) had us look at it in chunks using Stockcharts.com.

When we do it that way in two decade chunks, the message becomes crystal clear. The 1980s-1990s were an anomaly and since most of us cut our teeth in this business at that time it is no surprise we think that 5-10 year time horizons returning 10% (not even the 20% of the bubble) is a gimme. We expect to make that return if we are patient.

Of course, think again. It depends on when you do it. Right now, expect very little unless you are willing to trade the market with a time horizon of months, not years.

Here is the link to one of the charts, starting in the 1980-2000 time frame.
http://stockcharts.com/charts/historical/djia19802000.html

The chart itself is too big to display nicely in this blog. Go visit it and then click on the "previous" link at the bottom, going back in time to the start of the last century. When viewed in these chunks the message is clear. The stock market moves in secular rallies and non-rallies. This decade, and possibly the next, is a non-rally period from the long-term perspective.

Managing your portfolio - not day trading it - is paramount now and should remain that way for many years to come. We just had a cyclical bear market. I cannot wait for the next cyclical bull market to begin a la 1975.

Let's not argue in the blog post over when that rally will actually begin.

Pass the Salt

Once again, I am in the uncomfortable position of having my latest column written before the stock market tumbled this morning and published after the afternoon wipeout. Not only that, the editing process missed some of the qualifiers I added to recognize that my thesis was more than dinged.

The bottom line is that I stand by my conclusions. The problem is that Wednesday's late smooshing threw a giant monkey wrench, make than monkey poo, into the mix.

To me, the evidence is still on the side of the short-term bulls. No, the market is not ready to launch a sustainable bull market but with everything outside the market looking so durn (decorum prohibits other terms) rotten - from job losses to foreclosures to loan officers and their tight sphincters, anyone calling me a whack job for even thinking about stocks has a case.

But isn't that the best time to be buying? When eveyone hates stocks and ridicules the messengers who say there is value to be had?

Look, we had a stinko day but after the buy the rumor rally on Election Day, a sell the news decline seemed inevitable. And we got it in earnest. Futures are lower in early evening trading so I won't be sleeping well tonight. But then again, it was a wise trader who said that when a trade makes him sick enough to throw up he knows its right.

So, pass the salt. I have to deal with the egg on my face tonight but a single day - one with rather low volume - does not erase all the other evidence backing a short-term - repeat - short-term bull case.

Did you get the color I sent?

Back in the 80s, I found a casual/beach clothing line called Maui and Son. Every piece they sold had the phrase - in a cartoon strip style dialog bubble - "Did you get the color I sent?" I suppose it was to get someone to ask what it meant and get a conversation going.

No soap, radio. I am sure a lot of you remember that jabberwocky of a non-joke, too.

That brings me to today's "I can't believe people pay for this advice" entry. The proprietary indicator name has been changed to protect the guilty.

And I quote:

"The daily <> gave us a "sell strength" signal Thursday and we have a "best fade" sell signal implying weakness by Tuesday. The thing is, we have a new buy signal from the <> . The chop we got really doesn't fulfill the predicted move and we could still have some weakness on Monday, since there are profits to take. I'm not expecting too much downside, however. Too much skepticism, thank goodness.

Endquote.

First, WTF did it mean? and WTF is he/she suggesting his/her subscribers do about it? Excuse the language but this is why investors and the media look down on market analysts.

Explain what you are looking at and why. Have conviction with your opinions. Give your subscribers a clear idea of what to do. And then say what has to happen to prove you wrong.

Thank you. This has been a public service announcement.

Finally, it's here

No, I am not talking about November and the start of the seasonal sweet spot for equities. Although, selling in May and going away - far away - sure would have been the right move.

I am talking about the election. And the two-year buildup where we spent - some might say wasted - so much mental capital that we are collectively exhausted. Just over one day from when I am writing this, we will know who will be the new patsy, er, commander in chief who is charged with getting this economy back on track. I am glad it will not be me but then again, if you just let nature take run its course the economy would do the job all by itself.

How's that 700 billion dollar handout, er, bailout, er, rescue package doing? Ask bank shareholders who just got paid their dividends and they will say, "just fine." Ask AIG's travel agent and you'll get the same answer. I am actually wondering if I will be able to lease a new car when my current lease expires in a few months so don't ask me how its going. Don't ask homeowners or business owners, either. Yes, I know it is too soon to see real effects but we need it now, not later.

Meddling in the free market always backfires, no matter how good your intentions may be.

But back to the election. Why am I glad it is just about over? Because the market hates uncertainty and it does funky things when it is unsure. When we know who will be President and his Veep, no matter who wins, everybody can start to accept it and move on to their own little worlds - of business, spending and saving. And the market can get its act together.

Yes, there are other issues in this election but from the standpoint of this blog its the economy, smarty (I won't call my readers stupid).