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Will Thanksgiving Turkey Become A Christmas Goose

November 23, 2000

Psychological worries transition . . . into fundamental concerns, as what can start-out as more or less a 'delaying action' while the markets are essentially on-hold while the political stalemates remain pending, actually risk worsening the situation by virtue of an ongoing buyers strike mood. Because the market's condition is primarily earnings-based in a few stocks, and a clear absence of buyers in others (partially decisions on hold for various reasons), one can not only measurably estimate where resistance would be on a meaningful rally, but basically anticipate one when (not if) at least some of the concerns ameliorate. As noted the day after Elections, if this went more or less a week, o.k., the market would hold the existing range; if longer it wouldn't. It went longer (it might end quickly, needs to, but nobody knows the timing precisely other than what happens if it dragged-on into next month); it isn't over; but we sense pent-up demand developing structurally.

Hooverisms and Tolls

Bear market behavior simply continuing? You bet; as such has been seen in Novembers before, but almost never in favorable market environments, which this certainly hasn't been for eons. It's now known, of course, if this year was the modern-day variation of the 1929 comeback; though I suspect this is a market essentially in suspended-animation (where limited selling can take stock prices down, and limited buying puts a very rapid ceiling on rally efforts, which do intervene from time-to-time), waiting just for exactly what so many think is not pertinent to the market; politics. It is not news that the economy's slowing; to us that issue's no more weighty than it was earlier this year. Only prices of stocks are lower because confidence is eroding, and that is contributed to by an incredible political situation, which is why we believe that has unusual ongoing contributions.

About two weeks ago we suspected the market had no more than a week to fiddle around before a series of lower-lows could really (especially in NASDAQ, and to less extent Nasdaq 100 (NDX) stocks) spook the technical pattern, and it has done just that. At the same time more bad news is hitting, one has to contemplate how a soggy holiday spending season (already expected here) is going to contribute to a tone of 'hopelessness'. Yes we know that can be associated with bottom formations (right now), and would very much like to see that occur. But the stock market doesn't function in a vacuum always detached from the real world, as investors are currently discovering.

That does not mean there's not an increasing cash hoard capable of coming into the U.S. market (enhanced by all this to some perverse extent, plus of course seasonal monies not being put to work which are accumulating); it doesn't mean the Fed won't shift coarse in mid-December (if not the risk of being considered Hooveresque will become a mantra in some quarters besides here); and it doesn't mean one of the largest rallies, ever, isn't out there in the wings; maybe it's even going to be colossal. But it's not going to happen (or any move be sustainable) until the Election is resolved. Markets need not only turn, but show an ability to take-out at least one key level above current price levels (affirming a trend reversal) and some hint of a better mood on the part of consumers (and citizens in general) is also provided. If not then this market has and continues anticipating not one of several recessions that never occurred, but one pending for months now.

The serious questions actually border on resurrecting what were called 'Hooversisms' after and in the midst of economic woes four generations ago, when solutions including easier monetary policies were brought to bear too little too late, based upon some inherent feeling of strength in a domestic economy that had already lost momentum. We are not talking about pedestrian views of a slowing economy taking a snowballing sort of toll (of course that happens, or is perceived at least, until things turn back up), but emphasizing why some of the discussion about whether the market is focused upon the 'economy' and not the Florida voting quagmire, are essentially moot; as we have been discussing every night. Selling can beget selling, and woe beget woe, as many retreat from spending contemplations, and focus instead on spending the next year rebuilding; a normal characteristic not only in portfolios of millions of Americans, but of corporations too. That is why instead of leadership (on the National or corporate level) you have resignations; or even a resigned mood that matters don't matter. They do matter, so that's why (we suspect) there is so much pressure on the Florida Supreme Court to arrive at a decision as soon as overnight, now.

If that happens (it did) and if it's not automatically opposed by one party or the other (it was) then we might be a bit more willing to conclude the powers that be understand what's at risk and have conveyed as much to the politicos and to the Court. More is at risk than just the U.S. market and all of our carefully guarded (sometimes properly, sometimes too carefully) portfolios built over the years. The U.S. is the anchor of the world's economy now; there is no alternative. There is no Japanese Regan; there is no opposing Superpower; and we have Oil hanging-fire amidst cold weather. However, there is a strong Dollar and stable T-Bonds; lose those and the financial world would respond quickly. Keep those, and resolve the politics (fast), and stocks go parabolic.

This is a painful market no doubt; but one that (in a few areas simply seems) near exhaustion of sorts; but isn't capable of a sustainable rally (or even short-covering rout that lasts) without news. And it needs that news first on the political front; as well as an absence of public rancor from the other side (we'll believe that when we see it). And it needs the National mood to improve rapidly, in the wake of that. Don't believe the arguments that markets can't turn and rally while earnings are eroding; of course they can. Years ago we had markets that were tanking amidst earnings or profits increasing; which is the same condition (perception) with exactly opposite fundamentals. It was amidst inflation, which the Fed thinks we have, but which we generally don't, and haven't for awhile now, at least in our view (stagnation was the call for this year, along with lower rates of profit growth; both having largely been correct). Will the Fed use the shrinking profits growth as an excuse for a belated change in their bias statement at the December meeting? They should.

We say 'now' about resolution, because the stock market is showing an ability to move into new low territory for the year (particularly NASDAQ), without really an evacuation, or washout. So far this qualifies as an ongoing (and tough for most everyone to handle) 'salami decline', where the sellers don't hit the market hugely in any one day, but erode portfolios until they eventually break down psychology, elicit a washout, and for those on margin (which we consistently abhor) likely get the whole sausage. That the market is meandering under supports, in an 'oversold condition' (though not jammed, or lengthy yet) on a daily and weekly basis, means the market is suspicious of the downside a bit, hesitant to be selling at fire-sale prices, when many would rather be buying stocks, amidst basically sagging (forget the Dow Industrial's relatively minor gain today) prices.

Meanwhile, the hotline (900.933.GENE) actually had quite a good day by playing the moves in both directions; netting a theoretical 3400 points or so; including a short from 1353 early-on in the opening rally; a cover and long around 1339, an exit around 1352; one small gain and one offsetting loss, and then another good gain. (Individual results may and should vary from these, either better or lesser, as we strive to emphasize the pattern call as well as structure the levels.) As of the last exit at the 1353 area, we went flat for the rest of the session, and also overnight.

In summary . . . stock action remains heavy, almost dire for the Senior Averages, and NASDAQ, but inscrutable in that breadth was not so negative as a penetration of key levels might imply for most occasions. Thus there has not been a really seismic shift in markets, not in politics for that matter. Hence, while we knew there was a limited amount of time to resolve the Elections (and of course to enhance consumer sentiment, silly as that may sound for such reasons, but a factor); it is not inconceivable that even during the Thanksgiving hiatus we actually get a Court decision, to the extent that if a rally is already underway, it would merely continue beyond the holiday recess.

The McClellan Oscillator has moved below the zero-line slighty (only), now at –2 (nominal plus 2 change incidentally). NASDAQ's variation is at a –36 level (nominal minus 4 change; there's a very interesting choice). Anyway, the U.S. market's character continues nervous to say the least, as political uncertainties deftly move closer to a resolution; at least superficially. There's potential out there; though not some many are willing to address, yet. And yes we suspect the groundwork is being laid for friendlier Fed policies as they rethink their conservative stance at the last FOMC.

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