A broker friend of mine made a great comment just the other day. He said this market won’t bottom out until they have taken every bull in the room outside and shot him. At that point the bottom will truly be in. This individual was very pessimistic on the market’s current slide, however, I think his statement is very accurate. We really can’t have a bottom until the bulls have left the building on a stretcher…
Like Apollo Creed at the end of Rocky 1… “Aint gonna be no re-match… don’t want one”…. Then and only then no one will be there for the bears to sell into. Its that simple. At that point, I see us having two options or two different types of market recovery.
The first is a violent correction higher, something like a several days or weeks of consecutive +500 point rallies. That seems unlikely, but, indeed, one never knows. The second 2) option is a long period of ‘base building’ within a relatively narrow 1500 to 2500 point trading range. Imaging breaking back down below to the 6500 level and trading between 6300 and 8700 for a period of YEARS.
If indeed, we do have a ‘capitulation’ sell-off again here during the Summer of 2010, my guess is that the rebound this time would resemble the second scenario.
Investors are tired, disappointed, and for the first time in 70 years, the US economy has no driving engine of growth. Not industrial, not technological, honestly, I am searching for the industry or technology which will ignite growth over the next 15 to 30 years. In the 60’s it was “plastics” the famous line from the movie classic “The Graduate”. In the 70’s we still had manufacturing growth as a base, while the computer revolution took off from about 1976, accelerated through the early 80’s and then peaked as it drove us through the boom of the 90’s. A 30 year growth cycle.
Which is what we are searching for currently.
I have written in here before that stocks do have to climb the wall of worry and negativity, however, there needs to be underlying growth driving the economy. After 3 years of fear and loathing, one more spike down could lead to permanently disgruntled investors.
We could be set up in the US to mirror the Japanese economic cycle after their economy had its real estate bust. Remember when the Japanese bought Rockefeller center, Pebble Beach and 3/4 of the residential real estate in Hawaii. Ten years later, US investors were quietly buying those properties back at 20 cents on the dollar. In the case of Pebble Beach golf course alone, the Japanese lost about 500 million dollars between its purchase at the zenith of Japan’s strength in 1990. Selling it to a group of investors which included Peter Uberoth and Clint Eastwood in 1999.
Is the USA in 2010 Japan in 1999? Just beginning to honestly bottom out? Take a look at the chart of the NIKK. A short break down… 1990 high at 38K, fast forward to the middle of 1992 to a low of 15K. OUCH… Then between 1992 and 1998, for six years, the index traded between 15k and 22.5K In 2000, with 911, the market again dropped from 20K to get ready for this….. 7500 in 2003….OMG, as my 13 year old would say.. Oh, My God… The index then rallied 10K points from 7500 up to 17.5k in mid 2007.
Then between 2007 and currently, the market traded back down to 7500 two more times, and is currently holding above the 10K level. Exhausting, yes, but actually, looking like a buying opportunity. 7500 looks like a triple bottom. More importantly a triple bottom tested 3 times in a 13 year period. It actually looks like a bottom. It only took 20 years to confirm it.
So, what does this tell us about the US market, specifically the Dow. What it tells me is that anything is possible. Did we learn from the Japanese experience? I don’t know.
I can remember in the First Bush campaign, the cry at the time was we “had to be more like Japan” Japanese ministers were quoted as saying the following. “The US will be our garden, and Europe will be our boutique.” Then reality hit, they had a real es ate crash to make Mr. Potter salivate from the grave, and it only took 20 years to work itself out.
Which brings me back to my first point… Where is the growth engine for the USA? Being impatient Americans we are looking day to day, week to week, quarter to quarter trying to read the tea leaves. If you don’t believe that, just watch the TV coverage of the market.
However this turns out in the US indices, I hope it really does not resemble the path of the Nikkie. For all our sakes as US citizens.
Technically, Look for support at 9430, 8886 (my personal favorite b/c its 1/2 way back) followed by… take a deep breath…8302…7200 and then of course our recent 13 year low 6450 in March of 2009…
I’ll write about the S&P next week. For now, Those are the numbers I would use as buy points to enter long positions. Have the resting order there, along with a stop below which is comfortable for you.
I will also write about the grains. This coming Tuesday through Thursday will be pivotal for the grains. A 44 cent rally in the corn, and a nice bounce in the beans could be swallowed in a heartbeat by perfect rain/sun/heat conditions.
The wheat, of all three, looks the friendliest to me at this point. A case of bearishness getting over done, and finally getting some harvest issues to give us a bullish tint to rally with.
Happy 4th of July weekend. The USA is still the best country to live in the entire world, and over time, we can overcome all obstacles. We still have the independence gene running through all our souls, courtesy of our ancestors who had the foresight, courage and strength to come to the country where opportunity resided. On our independence day, let us remember that, as a nation, we were founded by a nation of can-do souls. The naysayers and prophets of doom have been forced to eat their words for 234 years. Lets keep that streak going.
Good Trading