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Today's WrapUp by Martin Goldberg 02.12.2004 Mon Tue Wed Thu Fri Archive |
"Presidential Election Conspiracy Theory"
I have received much e-mail in the fall suggesting that there are interventional forces acting to keep the market going up or at least prevent a meaningful correction from occurring until after the presidential election. When I first read these e-mails, my initial reaction was to dismiss them as reflecting the opinions of a generally bearish FSO readership. However recently, I have also seen some of this same presidential election rationale routinely used in some mainstream publications such as the Barron’s Roundtable, and quarterly newsletters of major brokerages. Basically, these publications suggest that Fed policy will be accommodative of the stock market until the election and that these policies will be successful in supporting the stock market until the election. In addition, I have found that this “presidential election” support theory is prevalent at many pubs and water coolers around town. It almost seems to be common knowledge that the market will not fall because of the organized support that is anticipated to remain until the November election.
Whatever the specifics of the interventional forces (or Plunge Protection Team (PPT)) used in this conspiracy theory, if it is real, then we may have a timing tool for an overdue stock market drop. Since the market is a “discounting mechanism,” it’s obvious to me that the market should be hit with a wave of selling before the election. Why before? Do you believe that anyone holding stock based on the presidential election rationale would be foolish enough to hold his or her stock until after the election? How do you think that would that play out? Would the PPT allow all widows and orphans to sell on the Wednesday after the election at the closing price of Election Day? Would they then allow all momentum players and day traders sell on Thursday, and mutual fund investors on Friday, all at Tuesday’s closing prices? I don’t think so! Such privileges to sell at yesterday’s close were only allowed by some mutual funds for their hedge fund customers. That is, before these people got caught cheating. If you feel that interventional forces are supporting the stock market, then you may want to consider selling in advance of the presidential election. Actually, even if there is only significant belief of organized support (and no actual support), that could also precipitate a stock market drop in the early fall. Show me the person that will buy stocks after the November election because he feels that the Fed (or whatever the form or organized support) is going to support the stock market before the election.
My point is that if you believe there is a PPT, then you should look for a stock market drop before the election since the stock market is a discounting mechanism. And the pre-election drop could actually affect the election results in just the opposite way as was intended.
Do Patterns Repeat?
The charts that I present below may stimulate your thinking on whether “this time it’s different”. The chart on the left is the Dow Jones Industrial Average in the 1920’s plotted on a numerical scale. The chart on the right is a chart of the 1990’s to the present Nasdaq bubble, plotted on a log scale. Note the similar shapes in each chart. Since the recent Nasdaq chart is plotted on a log scale, and the 1920’s Dow chart is plotted on an arithmetic scale, the Nasdaq chart is much more “extended” at its top compared to the 1929 chart. Also note the presence of an important rally in both cases. We are in the midst of our “important rally” now. Although the durations are scaled longer on the recent Nasdaq chart, it is interesting that the important rally occurred within a timeframe that was proportional to the time needed for the parabolic rise to occur in both cases. The DJIA chart finally bottomed near the bottom of the diagram (not shown). Where will the Nasdaq chart bottom?
OK. If you buy into patterns repeating between previous generations and today, here is another “chart” to consider….
Yes, the present day “chart” (below and to the right) is much more contrived, displaced, and artificial compared to yesteryear’s chart. Some may suggest it’s somewhat analogous to our current “economic recovery” compared to the one in Joan Crawford’s day.
Greenspan Testimony
I was at home sick the last couple of days, and on some painkillers. That is probably the best way to watch CNBC - in a state of half-consciousness. Watching the Greenspan testimony yesterday, I think he said that new jobs were just around the corner; but he couldn’t answer the question of what industries the jobs were going to be in. He seemed to tell young people to learn how to read and write, and the jobs would come from American innovation, from some as yet, undefined industries/functions. Yet today, he sited the failure of our education system. So what would make the jobs happen? “It’s always been that way before in the US”, said Greenspan. Not much for young people to go on here. In any case, the stock market loved Tuesday’s testimony, and was neutral on today's.
Today’s Market
A second day of Greenspan testimony, Imclone, and more on Comcast/Disney highlighted today’s stock market action. Today’s stock market resulted in a give back of most of yesterday’s gains. The Dow and S&P 500 were down less than 0.5% and the Nasdaq and Russell 2000 were down by about 3/4%. Volume was light on all exchanges. Gold was little changed, finishing at about $411.90 per oz. Silver had a tremendous roller coaster ride, trading as high as $6.69, before trading down $0.02, to close at $6.57. We’ve seen this happen many times before. It tries the instincts of traders who consider taking profits off the table after precious metals surges and wait for another lower entry point. Some very intelligent money managers tell me that you should hold your positions in a bull market. So hold, I will. Dell reported self-satisfying results, which made the CNBC commentators happy. Yet the shares are down in after market trading by about 1.5%. I don’t know what speculative favorite, Nvidia reported with their earnings, but it is selling off in very heavy trading after hours. Imclone is making the entire group of CNBC birds chirp, and it’s trading like a manic-depressive. Looking at the nutty trading patterns of Imclone, it’s difficult for me to believe that the whole Martha Stewart thing is over a couple thousand shares of this speculative favorite. Yet it is.
There was a lot of talk about the Comcast hostile takeover attempt of Disney in an all-stock deal. Given how much the deal has changed from the stock price moves over the last few days, you would have to wonder how much sustainable synergy is in the combination. The same amount as AOL/Time Warner? Comcast is selling off. Look for a wave of analyst upgrades of Comcast in the next few days.
The 10-year note sits just below a short-term resistance line, as shown in the chart below. It finished marginally down today.
Have a great evening!
Martin Goldberg
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Copyright © 2004 All rights reserved. Martin F. Goldberg, MS, P.E. |
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