May

31

 It would take a Beethoven to do justice to the final triumphant rise in the stock market yesterday, the one that carried the S&P to an all time high of 1530.2 in the index, and 1534.5 in futures. Indeed, Beethoven could have written the ninth symphony about the last few days in the markets, with the long battle between minor and major in the first movements finally giving rise to the triumphal Ode to Joy at the end.

It was particularly apt and 'Beethovian', that the market had failed to eclipse the old high four times in a row the previous week, having spurted above it at the beginning of each day, only to get hammered down every afternoon because of concerted selling by bearish forces. Finally, yesterday, with the futures market at 1524 at 2:30p.m., the market rallied a nice ten points to finish at 1534 for the day — an all time high.

The rise was almost symmetrically opposite to Thursday 24th of May, when the market had rallied eight points above the Wednesday close, to 1532.5, and then promptly dropped 25 points to 1508. Yesterday, six calendar and three trading days later, the markets opened down nine points , dropped one below that, and then raced up 21, for a 21 point range (compared to last Thursday's terrible 25 point range on the down side).

Also 'Beethovian' was the way that the China downturn set everyone up to be bearish. Yesterday China tripled its trading tax, making it prohibitive for
anyone with proper knowledge of vig. to day trade, and the U.S. markets
once more went down a fast one or two percent in sympathy, but this
time only briefly. Recently of course, there was the February 27th, 58 point down day that happened on the first news of China trying to cool its markets down. Since that time, everything that looked like that day, as is almost invariably the case, has actually been a signal to buy.

The fake Doctor, with his cursory knowledge of the situation, blatant attempts to aggrandize himself, and his usual amateurish use of past patterns, has tried to gain purchase by 'bearing' the market down repeatedly over the recent weeks, with warnings similar to his original February 27th clarion. Each time he has tried, the day has started with doomsday activity, which has then given way to substantial rises, like yesterday's.

Also beautiful in its perversity and symmetry was how the announcement of the minutes of the May FOMC meeting led to an action completely the opposite of what occurred after the meeting itself.

Of course this is descriptive, and tests of markets that bounce back immediately from substantial declines, contrary to popular belief, show that the faster the excursion from big down to up, the more bearish it is. However, after an all time high, the statistics on the table favor up moves over a three to six month horizon.

There must be many bears who will finally throw in the towel now that they can't hold onto the mantra 'we're still in a bear market because we haven't exceeded the old highs.' The three main unexplored reasons for bullishness, which I wrote about over the weekend, still exist, and these are augmented by the tremendous and predictive gap between the earnings yield and bond yield of some one and a half percent.

There were also many other records set in the markets yesterday, like the Dax at 7847, a seven and a half year high, but still ten percent below its 1999 high. Google was at 498.60, almost breaking 500, and even Saudi Arabia was up at 7492, after a twenty day intra-day low of 7346. The Nikkei futures were at 17,865 at 2 a.m. New York time, with the three month high very close.

The amazing thing is how little the U.S. markets are up this year (approximately nine percent) relative to 100 plus other markets around the world. Markets are up approximately twenty percent in South America and Canada, twenty percent in Germany, and fifteen to twenty five percent in the typical Asian market.

As a final note, the fifteen positive sequences of 100 points in the Dow, with its new base of 13600, would seem to indicate a new regime. Of course there are markets that are up 100% or so, and they are vulnerable, but could those be pilot fish as to what the U.S. may go on to do? We are so used to meager gains and bearish scenarios, that one forgets how high a bull market can go. This is not a prediction but a remembrance of how much money I have lost by shorting markets that kept going up after seemingly bearish opens, like yesterday. 


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