Let’s play do you think it’s a bottom? That’s the question on lots of minds. There’s an element of the fund community who think this is an excellent buying opportunity. Stocks are cheap, they are on sale, and you get a nice discount. There’s another guy who’s still touting SPX 1600 by the end of the year. Folks, this isn’t Wal-Mart. The most work you have to do to get a discount at Wal-Market is to get in a line after your turkey dinner and wait for Black Friday. I’ve done it, it’s not fun.
To get a discount in stocks, we all know it never happens by decree. You don’t will it to happen; you do it the old-fashioned way, YOU EARN IT. And you earn it by buying when there is blood in the streets. So let me ask you this question: Was there blood in the streets Thursday night?
Let’s see what happened. They took two market leaders to the woodshed and by the time the NQ dropped 40 points, it already came back. If you went to Mars on Thursday morning and just got back you couldn’t tell by looking at a chart the NDX/NASDAQ swallowed anything evil. I’m sure you’ll disagree if you are a holder of Amazon or Apple, but that’s a whole different column.
But the NQ came back which means this does look like could be a really good attempt at finding a low. However, just because they took 2 market leaders to the woodshed, there wasn’t much fear involved on Thursday or Friday. I didn’t even see the Euro equity bears on Friday. How could we possibly have a bottom without those bears putting in their 2 cents?
I wrote in my Saturday update that we needed to see the fear swell to catch a real low. So now we have to play meteorologist. Before I go on I don’t think any of this is funny but ours is a perverse business and occasionally we have to have these discussions.
Some of you will remember I booked my summer vacation in 2011 to the Jersey shore. Some might think I could’ve picked a better place but when you spend all summer in Phoenix a week in New York City and the local beaches there is very appealing. My problem was I booked the week of hurricane Irene. See, I thought I’d be safe booking a vacation the last week of August to New York as opposed to a place like Florida. Shows what I know.
I was there for hurricane Irene. What I remember most about it was the concern for the storm surge coming into New York harbor and flooding lower Manhattan. Last time they dodged a bullet because the wind shifted at the last minute and New York was spared. Once again, the headlines on Sunday were about storm surge flooding Manhattan. It would be unprecedented and not something New Yorkers are accustomed to. I hope it doesn’t happen. Could it damage the financial district? Who knows? But the fact we are even having this discussion is germane to our work. The headlines are already raising the fear to levels not seen last week. Let us not forget the first leg down of the 2011 correction completed on a Japanese earthquake/tsunami event. I’m not suggesting New York is getting anything like that, but everything is relative and the fear right now is nobody knows exactly where this storm will hit or the damage it might do. I’m no expert on hurricanes but I knew it would was a smaller probability event for Irene to hit the Northeast as a Cat 2 event. But even as a Cat 1 it did a lot of flooding damage in New Jersey.
So while we may have a low working, whether we get a fresh low on a retest is irrelevant. What we are looking for is an elevation of fear levels to give us a trading bottom. Last week we discussed the floor in the SOX. It never made it down there yet. It’s still possible. In other areas the Greenback is now in a good position to take out the previous highs in September. After a great start for the SSE, it also broke down and if it’s going higher it must reverse back up on Monday as it’s concluding a 163 day window. It would be very easy for it to retest the bottom again. So I think we have an excellent chance of retesting the low.
Next page: Election impact
Now we are a week away from the big day. As far as our work is concerned, the correction has done its damage. What looked like a cakewalk for the incumbent our October time window which was Romney’s last chance actually might have been the turning point. We are now one stock market week out. I think we are to the point from a socionomic standpoint that whatever happens this week isn’t going to change the election outcome anymore. After months of analyzing this thing, the October turn melted the incumbent’s lead and the correction actually has the challenger ahead by a nose. I’m sure a few down days couldn’t hurt the challenger but I now think 99.9% of the people who are voting have made their decision. Even though I’m not political I’ll be voting. I think if the election were held right now, Romney wins by a nose.
On another socionomic note, the bull market hero (if you can call it that) would be the incumbent President and regardless of what you think about him, given the country’s racist history, an African American President is an incredible step forward for this country and Mr. Obama will always be a hero to many segments of the population. But since this correction hit, the Libyan fiasco just won’t go away. I’ll measure my words carefully and allegedly the administration knew the raid was a terrorist attack. That has been widely reported in the media, we know that. I think that if Obama wins, it will not go away and likely becomes a 2nd term scandal. Whoever wins a 2nd term ends up with some type of scandal, don’t they?
To sum this up, we have a market that’s fishing for a bottom. I think that technically we could be very close but I don’t think sentiment has caught up yet. In our chart of the week we have the SSE which is disappointing again. I think it will be very hard for the risk on trade to get it going without Chinese help.