With the Fed meeting tomorrow, we are about as excited as mourners at a funeral.
That’s because the Fed really is in something of a no-win position.
As explained in yesterday’s column, the Fed is trying to navigate the same kind of seas that faced the 1928 Fed. There were modest interest rates and pools of cash had piled up on the sidelines. And bonds were hot, as well. But the real place where the action centered was the stock market.
We seem to have overlooked the fact that since the market low in 2009, the Dow has screamed from a weekly close in March of 2009 of 6626.94 to almost three times that number before the current round of “second thoughts” popped up last summer. Similar gains for the S&P, too.
From an Elliott Wave standpoint, that was where we start counting the current wave down from. The top on 4/15/2011 (on a weekly closing basis) was arguably the end of the Wave 1 up. Then you run up to last summer.
I work all these numbers using something I call the Aggregate Index because you can’t trust only the S&P or Only the NASDAQ, or for that matter, only the Dow. Not that they are not of high integrity as data points: they are.
But what lacks integrity are the market players themselves. Back in the days of the old University of Colorado Longwaves group, my consigliere (and others who pop up here from time-to-time) noticed the evolution of a phenomena called “hot money.”
This was wire-transferred all over the world and with computer speeds increasing, it became more and more evident that the behavior of the markets became more like traffic on the freeway. If there was an accident in Asia, things slowed down on that stretch of the financial highway. Lookers, gawkers, and bottom-fishers duked it out there.
Halfway around the world, another batch of hot money might land in Europe. So the markets there might be going up. And in-between, the market could be going up, down, or sideways, here in the USA.
The ONLY SOLUTION THAT MADE SENSE to me, anyway (being of limited brainpower and all) was to build first a Global Index (which we present on the Peoplenomics side twice weekly) along with the U.S. Aggregate. A lot of the money comes off the table for weekends, so that’s what matters in our studies.
Again, not that the S&P is bad, neither is the Dow, or for that matter the NASDAQ Composite. But you see, it’s the fashion in investing that swells or fades. That’s why in one period of time, say the week of July 23, 1999, the Dow was 10,910.96 while the NASDAQ was 2,864.48.
If you divided the NASDAQ into the Dow at that weekly close, you’d see it took 3.809 times the NASDAQ to “buy the Dow.”
As always, the fashion in investing goes to extremes. The the week of April 10, the following year, it took less than 2X the NASDAQ to buy the Dow. 1.96664 if you really want to know.
But you remember what happened next? Somewhere between $5 and $8-trillion of market cap blew out of the NASDAQ in The Tech Wreck also known as the Internet Bubble.
We’ve got a chart for Peoplenomics subscribers tomorrow, but if you’re wondering, tech is held today at about the same investing fashion {esteem} level that it was being held in winter of 2000 when the top was in and the big slide was beginning.
You can learn a lot by marking up your own charts. You can ask logical questions, which we do, now and then. There’s the ratio of one barrel of WTI (west Texas intermediate crude) to the Dow, for example. With practice, charts will begin appearing in your head and trading decisions will become obvious.
So back to the macro view of the run-up since 2009: After 1 up topped, we did the required 2 down from Aggregate 8,816 the week of 8/15/2011, Since then, our Aggregate screamed ahead to the high last summer to complete Wave 3 up.
Then along came wave 4 down, which to my eye looks like it may be done, but no market goes right to the top again. We expect the familiar declines and pullbacks along the way.
Which gets us to today’s action.
The early futures were down (about –71 on the Dow) and that’s clearly the market trying a typical “sell the rumor” which should be followed by a “buy the news” by the weekend.
Amidst all this, Tech has been slowly gaining “respect” since 2003 in the aftermath of the Tech Wreck when it took about 6.7 “NASDAQs” to buy the Dow. One thing you can take to the bank is that with all this hype about the IoT (internet of things) we should, over the course of Wave 5 up (if the Fed policy doesn’t pull the plug on that) witness a retest of the ratio extremes that we saw in 2000.
A student of investment would likely be well-advised to spend less time on the absolute notional values of stock indices, but rather, use them as comparison tools in order to infer what I think of as “standard accounting ratios” the same way one uses ratios – rather thank dollars – in objectified analysis of company financial health.
And that brother or sister, leads us into this morning’s real data.
Press Release Festival
No point me rewriting this…
The Producer Price Index for final demand fell 0.2 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today.
Final demand prices advanced 0.1 percent in January and declined 0.2 percent in December.
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