Back And Boring As Ever...
Mark M. Rostenko
Stocks edged higher last week as the three major indices all posted new multi-month highs. The dollar retreated while gold managed to recoup a bit of its recent losses. Crude oil slipped back a bit but remains steadfastly above the $40 level. Meanwhile the expert analysts who never expected it to hold over $30 are all patting themselves on the back for "predicting" it couldn't get over $50.
After a well-deserved rest, I regret to inform the reader that nothing much has changed in my outlook. The market's summer doldrums are over, but those expecting that a bit of fun & sun would mellow my sour disposition and inch me closer toward the bullish camp will find themselves deeply disappointed.
It seems that while I was away from these weekly essays, the world kept on turning, war continued being waged, the economy continued to mostly suck, and stocks remained in the same dismally boring pattern they've traded in all year.
Greenspan went on lying, politicians continued spewing forth whatever the opinion polls indicated would garner the most support, and Americans continued to live beyond their means. I am well rested, but the world remains the same and thus my outlooks are as "optimistically-challenged" as ever.
For the most part stocks continue to paint a very boring picture, a picture not much changed from where it started earlier this year. While the market has once again bounced after posting a new low (for the third time since the March top), we find ourselves trading in familiar territory: that traversed in July, June, May, April, March and December.
For all practical purposes, we're still stuck in a trading range. The market's behavior is not unlike typical trading range action: bearish at the bottom, bullish at the top, with both bulls and bears routinely disappointed and whipsawed out of positions.
But what distinguishes this pattern from that of a typical trading range is its obviously bearish bias: a series of progressively lower highs and progressively lower lows. It's a downward-sloping channel with well defined boundaries (at least for the S&P 500). Most recently, we're coming upon the upper boundary of that channel.
"Will she or won't she?" Does it matter? Not really. If the upper boundary of the range is violated, there's not much reason to expect much more than a possible test of the mini-bull market high near 1163. Overhead resistance is huge, marked by the June, April and March highs. All this amid a "soft patch" in a recovery that never really got its footing and ahead of an election offering choices that would leave our forefathers laughing out loud if they didn't get too busy kicking themselves for all their wasted efforts.
Fundamentally, what's going to restart the so-called bull market? We've worked through all the recovery talk. We've seen earnings improve substantially. What will it take to drive the market higher? I can't imagine.
Earnings-reporting season is upon us again but it's not likely to be exceptionally supportive. With oil prices holding steadfastly above $40 for some time, increased fuel prices are likely to have hit the bottom lines in the last quarter. If good earnings failed to push the market to new highs, clearly we'll need to see exceptionally good earnings. That's not likely to happen this time around.
Retail sales have been sluggish throughout the summer. The jobs picture has grown progressively worse while the spin-doctoring surrounding it has grown progressively more amusing. But amusements don't translate into higher stock prices, so I wouldn't bank on that helping much. Meanwhile the Fed has risen rates and is expected to do so again shortly. Positives for stocks? Not especially.
Regardless of the fundamental situation, I suspect that the "trading range" behavior of the market is primarily a reflection of confusion and doubt that is not likely to abate soon. The most obvious feature of the economic landscape this year has been the disparity between market action and the economic fundamentals. Bullish news hasn't helped while bearish news hasn't hurt much either. What's a market professional to make of it?
That's the question and judging from the market's behavior, most folks don't yet have a suitable answer. It's confusing, even for a know-it-all like me.
In the meantime, the election is coming up and more than a handful of folks are more than a smidge concerned about some sort of terrorist disruption. It's not an environment that the smart money wants to be heavily invested in. Stocks are range-bound. The dollar is range-bound. The CRB Index of commodities is range-bound. Gold is range-bound. Everybody's waiting for some event that will pull us out of these doldrums. The irony is that while everyone waits, there's nothing to pull us out.
I expect more of the same, at least until the election. Yes yes, we've all heard the stories about how horrible September is for stocks. But the reality is that it isn't all that horrible. And October crashes? Well, two (almost three) in seventy years is more a statistical anomaly than a pattern to worry about.
Not that I'm not fervently bearish, mind you. But I believe the uncertainty and confusion hanging over the market is much more profound and impacting than underlying bearish factors. No one wants to buy it and no one wants to sell it. Barring a major exogenous shock, I don't see much happening until we find out for sure which wealthy, unfit-to-lead-a-squirrel-to-a-peanut-cache windbag will be steering the U.S. economy that much closer to ruin for the next four years...
Mark M. Rostenko
Editor
The Sovereign Strategist
September 13, 2004
Mark M. Rostenko, a veteran of Chicago's commodity exchanges and editor of The Sovereign Strategist, spends far too much of his time enthralled by the never-ending procession of inane prattle emanating from Wall Street. Nonetheless, it hasn't stood in the way of accurately forecasting the dollar's top, the beginning of the gold bull market, and nearly every significant turning point in the stock market since the bear market began. Please visit www.sovereignstrategist.com for a free sample issue and more commentary. And while you're there, feel free to join our international family of well-informed and successful investors.
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