Friday, December 5, 2008

Bad News - Nine Months Ago.

The news today is bad, bad, bad on all fronts. Here are some real headlines:

• Corporate layoffs near 7-year high,
• Job losses may hit 30-year high
• Services contract at worst pace ever
• Bernanke says efforts so far have failed to slow the foreclosure rate
• New orders for manufactured goods falls 5.1% in October, the biggest decline since 2000
• Plunging orders for durable goods
• OJ gets 15 years

OK, that last one if for comic relief. But hasn't the market already discounted this? After all it already crashed in September and October. The market saw it coming, didn't it?

And the risk now is for some sort of positive surprise. OK again, today's jobs numbers were not positive - at all - but "darkest before the dawn" and all that. When was the last time job loss resulted in a recession? It is always the other way around. Business gets stinky and they lay off workers - in that order.

Look at retail. Lousy news Thursday and the sector closed up while the market closed down. And as I write this after lunch Friday it is up again (the Dow is down 100).

The market did indeed sell off this morning on the jobs report but it has come back significantly. Premature to declare victory but this market is getting stronger, not weaker. No, not a bull market but a tradable rally. I fully expect another bearish few weeks after that.

16 comments:

patrick neid said...

Bespoke addressed the unemployment number today by comparing it to the size of the workforce. It didn't even make the top 40 since 1939 coming in at 41.

To match December 1974 the number would have to be over 1,000,000.

On the bright side people that are working and commuting to work have a lot more money in their pockets since July with gas having dropped more than $2.50 a gallon.

The Oct 73 to Dec 74 overlay is still holding!

Quick Takes Pro said...

Just discussed that with a colleague today. January through April 1975 was a vertical rally. Ride that one with a seat belt on snugly.

patrick neid said...

With fingers and toes crossed.

This is a perfect picture of how a market can rally with no one on board as they wait for the pullback that never comes.

http://www.paradigmbook.com/assets/DowHistory1970to1974.jpg

I have a pet theory that this whole melt down to date is really just a giant synthetic margin call creating forced selling. Mark to market run amok making everyone temporarily insolvent. A domino chain of sorts giving rise to a V bottom not unlike 1907 or 1974. When it abates I actually do expect a rally akin to 1975.

Clearly I need to get out more!

patrick neid said...
This comment has been removed by the author.
patrick neid said...

Here's the link again. The other got truncated?

http://tinyurl.com/4nyo98

paulocuana said...

patrick,

I like the 1974 analogy so much that I'll be heading to the library tomorrow to look at Barron's from that year.

Wouldn't similar action include a retest of November's low after a 20% or so rally?

Of course the '74 lows were early in October and December, one month up and one month down.

It's just hard to consider a January low.

patrick neid said...

Paulocuana,

Back in early 1987 I went to the San Francisco library and read/scanned the NY Times front page of the business section from 1921-1933. All were on micro film. The work goes pretty quickly. I can't say enough about this approach. When you are done you will have lived the time in question.

Micro film when available goes a lot quicker than computer searching.

paulocuana said...

My 2 cents:

My sentiment indicator is calling for a long-term, or at least an intermediate-term, bottom here.

I can't see this happening without a retest of the Nov. 20-21 lows. On a short-term basis we're overbought but that could be worked off by the end of this week. (see Carl Swenlin)

The other thing that indicates to me that we pull back before a rally is the near consensus that we rally from these levels.

The only thing I've bought so far is Junk Bonds; what can I say I need the income.

Let's watch and enjoy either way!
paul o'cuana

patrick neid said...

here's a link from Decision Point by Sy Harding discussing the fundamental backdrop to the 1973-74bear market.

I have been pimping the 73-74 scenario because of the charts. Will it prove out? I can't say. I certainly hope it does, aside from profitable trades, because deeper lows might/will have severe societal repercussions this time around. Already with the interventions we are seeing the marketplace is at risk to systemic damage it may not recover from.

The golden goose is being strangled.

http://www.decisionpoint.com/TAC/HARDING.html

paulocuana said...

Patrick,

Thanks for a very interesting article.
Another argument against Depression is the ideas of John Maynard Keynes. It's hard to imagine the government doing nothing these days.

jpmist said...

You don't post an e-mail, but I just wanted to pass on a high-five for your article I saved from last April's Barron's. In it you called a November bottom that, hopefully, may hold.

"Typically, most technically oriented investors look for important support levels on the charts to make their forecasts. However, more advanced chartists add the element of time to the mix and one measure in that regard pegs November of this year as the time of a likely bottom in the Dow 30 stocks."

Nice call!

http://tinyurl.com/66xduo

Quick Takes Pro said...

Patrick,

Your tinyurl chart is great. I was able to label each major turn with its 2002-2008 counterpart and the analog works really well.

Quick Takes Pro said...

jpmist,

Thanks for the kudos. Usually, readers just remember the bad calls. However, this time, through all the rallies and derision by critics, I was quite sure back then that the market was going down for many months to come. Even my grizzled old editor said he wished he listened to me.

Amalan said...

Michael,

Let me add my kudos, if I hadn't already under some other topic. Usually, I don't put much emphasis on charting - have seen many try and fail. Even Mr. Elliott of the famed wave theory was a bear all through the great bull of the nineties. But, kudos to you for catching the current one last October - amazing call. The followers of fundamentals were caught off-guard - Bob Brinker, Ken Fisher, David Dreman (famed economists some). I don't know whether you caught the bottom in late 2002 / early 2003, but you seem to be on track for the recovery this time around (time will tell).

Good work!

Quick Takes Pro said...

Amalan,

I can fess up regarding the bottom in 2002. I was skeptical from March 2003 to late May 2003. When the S&P broke resistance at the latter I turned bullish and penned an article in Barron's print saying the rally would last for many months.

My newsletter subscribers got a bit mad as the market went sideways for about two month after I turned bullish. But the secondary breakout happened in August 2003 and you know the rest.

My report card - missed the initial rally, turned bullish just in time for a sideways move but then stuck to my guns for a major gain through Jan 2004, when I said the rally was over.

The market drifted lower for another eight months.

Amalan said...

Michael,

the decline in 2004 from Jan to Aug seems to be just 8% (S&P500) - not too bad. So if you got out in Jan you better be back in the market 8 months later. Otherwise, being in the market all the way through until 2007 would have been better. My feeling is that one should be able to get out of the market if about 20% or greater will be lost from the highs. Of course, professional traders perhaps feel even a 10% decline is a worthy trade.