03/31/05 Market Soapbox
Todays market lacked conviction, evidenced by tepid volume, negative volume reversals in the last 30 minutes, (or leaking into the close) and overall lack of follow through on yesterdays solid advances. Yesterday looked like a headfake to me, and this confirms it. Its not a dead cat bounce, because we have not hit bottom yet. After examining last years dailys, I will share some observations, hopefully some astute individuals will be able to take advantage of them.
Around Jan 20th the markets started migrating down to eventually hit their cyclical March low point, around March 23rd. A steady rise from there terminates 9 trading days later on April 5th. The markets then reverse course and head straight south for the next 10 days, after a slight headfake up for 3 days, they continued downward for the next 15 days until hitting the May 17th low.
For those of you non sound byte types, who actually read, absorb and pay attention to details, here is the question of the day: What happened on Monday April 5th, 2004 to change the markets course? First hint: Its released the 1st Friday of each month. Last hint: Last years March estimate was 150,000. Answer: The Friday April 2nd release of the March non farms payroll report, estimates called for 150,000, the report showed 308,000.
It seems contarian but, increasing job creation is indicative of an expanding economy, which dictates rising prices, or inflation. That means the Fed has to raise interest rates to tame the inflation. Higher interest rates mean, lower prices on existing bonds, old bonds get sold, so as to buy the new bonds with higher yields. Stocks get sold in anticipation of lower earnings per share. Higher borrowing costs make it harder for business to profit by squeezing their margins. This trims their revenues and that precipitates a drop in their valuation.
The bond markets were immediately hit, the stock market took another 2 trading days to recognize the significance. This year, cyclical events seem to have been moved up 15 - 20 days, last year the Santa Claus rally ended 1/20, this year it ended 1/03. Last year, April 2nd, we were in a market that was rallying from its 3/23 bottoming process. This year, after forming double tops (or heads & shoulders) we are headed down to our cyclical low.
Tommorrow, April Fool's Day, the March report is released. The whisper number is from 190,000 - 220,000. Yesterdays, whipsaw head fake had me wondering if someone had leaked the number. Today's pathetic market action says otherwise. The definition of paranoia is being in possesion of the facts.
Like last year, I suspect some latency on the stock markets part, the reaction will not come until Monday, April 4th. A >=275,000 number will flatten the bond and stock market and keep us heading down till the end of April. A <=225,000 number will be regarded as benign, the bond and stock market will try to head up till April 6th.
This year, the combination of higher interest rates, energy costs, stagflation and actual inflation will continue to drive the markets down. In any event, this years 2nd qtr low will come at the end of April.
Around Jan 20th the markets started migrating down to eventually hit their cyclical March low point, around March 23rd. A steady rise from there terminates 9 trading days later on April 5th. The markets then reverse course and head straight south for the next 10 days, after a slight headfake up for 3 days, they continued downward for the next 15 days until hitting the May 17th low.
For those of you non sound byte types, who actually read, absorb and pay attention to details, here is the question of the day: What happened on Monday April 5th, 2004 to change the markets course? First hint: Its released the 1st Friday of each month. Last hint: Last years March estimate was 150,000. Answer: The Friday April 2nd release of the March non farms payroll report, estimates called for 150,000, the report showed 308,000.
It seems contarian but, increasing job creation is indicative of an expanding economy, which dictates rising prices, or inflation. That means the Fed has to raise interest rates to tame the inflation. Higher interest rates mean, lower prices on existing bonds, old bonds get sold, so as to buy the new bonds with higher yields. Stocks get sold in anticipation of lower earnings per share. Higher borrowing costs make it harder for business to profit by squeezing their margins. This trims their revenues and that precipitates a drop in their valuation.
The bond markets were immediately hit, the stock market took another 2 trading days to recognize the significance. This year, cyclical events seem to have been moved up 15 - 20 days, last year the Santa Claus rally ended 1/20, this year it ended 1/03. Last year, April 2nd, we were in a market that was rallying from its 3/23 bottoming process. This year, after forming double tops (or heads & shoulders) we are headed down to our cyclical low.
Tommorrow, April Fool's Day, the March report is released. The whisper number is from 190,000 - 220,000. Yesterdays, whipsaw head fake had me wondering if someone had leaked the number. Today's pathetic market action says otherwise. The definition of paranoia is being in possesion of the facts.
Like last year, I suspect some latency on the stock markets part, the reaction will not come until Monday, April 4th. A >=275,000 number will flatten the bond and stock market and keep us heading down till the end of April. A <=225,000 number will be regarded as benign, the bond and stock market will try to head up till April 6th.
This year, the combination of higher interest rates, energy costs, stagflation and actual inflation will continue to drive the markets down. In any event, this years 2nd qtr low will come at the end of April.
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