Rally in the Dark
I am happy with my work done on 8200, as a market bottom. The call was made on my part due to a series of statistical triggers being fired - the first being a tightening band of trade volume and price momentum at around 8200, the second being a correct study of short call pressure and finally the third being that I am probably just plain lucky and figured it out before anyone else.
But this rally is occuring in the dark. Thats the next danger for the markets. As consumers cut back 67% on their spending - over christmas break, the markets are betting that liquidation of that inventory in January will not have enough of an impact on retail to end up being a downward factor . The markets are always playing the game a week or so ahead of us. The truth is, it doesn't really matter what the market makers are doing now. What matters is what the consumers are doing.
The viral destruction of the investment banking infrastructure began in America. Its impact, like the bank crash of 1929, will be felt most prominently in job creation, and job growth. Bank ownership of certain businesses guarantees that the business itself may remain viable - but auction of the assets of that business, or , in the case of foreclosure - property - ends up having a significant effect on the markets as product and property price enter into a highly volatile state. Buyers tend to hold back a certain while, trying to find the bottom of a price market. And so worldwide, almost all markets have engaged in a kind of crash as they realize that very large institutions in their own countries are impacted. The trading between bank to bank is dependent largely on their own actuarial and internal studies showing their asset stability. Mortgage derivatives have been the most iffy things in the American portfolio - and so Banks started shutting down trade with each other to isolate the problem. And thats what happened worldwide - simple trust broke down, on the interbank level - as their own internal numbers guys saw that the downturn will have legs. They tried to form a firewall, and ended up burning the field. This has happened before. Their goal was to avoid the public engaging in a run on the banks for their money. And they succeeded, if at the cost of the broader economy.
Now, we've got the rally we've been waiting for. But if it occurs out of sight of the American public and the lay stock trader - the markets will not rally upward and hold the price, instead, they will drift sideways at this level. Only very specific stocks are going to spike upward. And you will, if you buy in- have cool stories to tell about how you bought stock "XYZ" at only 7.00 a share, etc.
But the problem remains that this rally is occuring in the dark. The largest cutback in consumer spending in nearly 50 years has arrived. And the markets have decided to ignore that. They've put the blinders on. We'll get a rally. But will it have legs? I don't think so. 8200 is a bottom for the markets but what most people don't realize is that the market bottom is not a very steep place. Its usually flat.
And congratulations to everyone that played it!