30 September 1999

All of the models are suddenly positive! The market finally responded to good economic news with a very strong performance on the highest volume in the past three months. Money was being put back into the market by professionals. Yesterday could be the bottom of a 12% correction.

The good news was that the economy grew at a "sluggish" rate in the second quarter. This calmed investors, because the great fear has been that the economy is overheated and headed for a sudden crash.

The markets are volatile and very choppy. However, a positive response on high volume to positive news is a notable event for the stock market. October should be much better than September was.

A good October would lead us into what is historically the best time of the year for stocks on a very positive note (see Is There A January Effect? for details).
 
 

29 September 1999

The upward spike in gold, and declines in bonds, stocks, and the dollar, suggest a resumption of the downward path for the stock market. Tuesday afternoon's recovery was wonderful. But again there was no follow-through. Instead, today the selling resumed. My indicators are suggesting we're in for another substantial down-draught. NYSE Index is down by 12% from its July peak. The Dow Theory very firmly states that we're in a Bear Market. I don't know where or when this will end.
 
 

21 September 1999: Dow Theory Flashes Bear Market Signal

The Dow Theory turned bearish today, as the Dow Jones Industrials confirmed the bear market pattern the Transports have been in for the past few months. The addition of  falling Utilities makes this a classic bear market signal according to the theory.
 
 

16 September 1999

There could be a bounce up tomorrow, especially if bonds have another good day. I'll buy back in if it's a strong rise...
 
 

13 September 1999

This is getting spooky--it's really staring to feel like something major is about to happen. And the indicators are more strongly down-pointing than up-pointing. The broad market pattern increasingly suggests that we may be in a bear market. Unless something very positive happens very fast, the next few months could be very troubling indeed.

Friends are telling me how much money they've lost in the market. The Russell 2000 hit its peak 16 months ago and hasn't made it back. The Dow Theory shows the Transports making new lows, while this time the Industrials haven't (yet) reached a new high. If this stands, and if the DJIA falls below 10600, we will have a very strong bearish signal according to the Dow Theory.

More bad news: volume peaked in April, and has been gliding downward since. Even after the recent 9% correction, there's no great upsurge of interest in buying stocks at these prices. Also, the dollar is falling again. International opinion of the health of our economy is on the wane, in favor of recovering Japan and other countries. Bonds have fallen for the past 11 months--they may be stabilizing now, but an increase in long term rates from 4.7% to the current more than 6% has a significant effect on the economy and the markets. Gasoline prices are up more than 30% this year.

And the good news (corporate earnings, low core inflation) continues to be ignored by the markets. That's maybe the worst sign of all.
 
 

9 September 1999

The broad market has glided downward in the past three days (despite the DJIA's rises yesterday and today). Last Friday's big rally was on pitiful (albeit pre-holiday) volume. There was absolutely no follow-through. This makes Friday's gain look like an upward "correction" within a declining market phase.

The market continues to be choppy and volatile. If tomorrow's Producer Price index comes in better than expected, the market could take off. But a bad set of numbers would be very disturbing to already jittery professionals.

This is not a good market for short-term trading. Proof of this: the dart board wallopped the professionals in the latest Wall Street Journal stock-picking contest. Near-term, who knows where the market's headed?
 
 

5 September 1999

A very very nice rally indeed--but has the economic outlook so suddenly become so clear? The broad market is still below its April levels. This "strong" economy is being fueled in part by people spending more than they earn at a record-breaking pace. But, spending savings and/or going further into debt can't go on forever.

Recommended reading: "Economics 101", The Economist, August 28, 1999, page 14. The article tells why "The Fed has been too slow and cautious in raising American interest rates". A sampling: "A vulnerable dollar, a stock market that on most measures looks hugely overvalued, a monstrous overhang of personal and corporate debt: all combine to make it more likely that America's boom will end in a hard landing."

Yes, we bought stocks on Friday. A greater than 2% rise in a day is very likely to have follow-through gains. I'm just not sure Friday's employment news so suddenly makes everything completely different.
 
 

2 September 1999 [post-close]

The market is getting volatile and choppy--a combination that makes short-term market timing very difficult. This still could be a near-term bottom. Or, tomorrow's employment report could spook everyone and send the market down another 10%. I'm on the sidelines watching for now...
 
 

1 September 1999 [post-close]

A nice rebound--but for how long? The continued drop in bonds would seem to put a ceiling on any near-term advance. A very troubled market...

Dow Theory shows a market divided--DJ Industrials rose to new peak while DJ Transports and Utilities have gone to new lows. Overall, a more bearish than bullish scenario.

Volume peaked in April. These last DJIA new highs have been on reduced volume, suggesting waning confidence and interest in buying stocks at these price levels.

But, the models have done quite well!
 
 

31 August 1999 [post-close]

Intraday action suggests maybe a bottom here? I bought in just in case...
 
 

30 August 1999 [post-close]

When the market drops like this, it doesn't stop until it stops. Now that may sound like Yogi Berra to you old-timers, but it's true. There's no way of predicting where this is going to end. Could easily be a replay of last summer, despite the fact that last summer we faced potential global depression, and now that danger has waned.

The market seems very very tired. The long bond back above 6% is just another reason to continue selling. All the good news (primarily earnings) is ignored.
 
 

26 August 1999 [post-close]

A one-day drop in excess of 1% always carries risk. The broad market is at its low for the week. A pretty wimpy rally ended with a big drop (just like the wimpy mid-July rally that preceded the recent 9% correction). This despite the best bond performance we've seen in quite a while (long bond below 6% again!). The next few days are key.
 
 

26 August 1999 [mid-day]

This is an interesting moment. The broad market (NYSE) has recovered about 60% of it's losses since mid-July. If the rally stops here, then the past 2 weeks were just a break within a longer term downtrend. Short term retracements in the 40-70% range are typical in bear markets. I don't think this is a bear market--but it sure is sluggish. And narrow: the DJIA sets records while most stocks plod along.

Although I'm optimistic overall, if the market stays down today, I'll take the profits from last Friday's purchase, and wait on the sidelines to see what happens next.
 
 

20 August 1999 [mid-day]

The market's gain today is significant. If it holds I'll be entering the market before the close. Bonds are wobbling over the past few days--their recent rally may not have much staying power. If the market holds or extends its gains this afternoon, it would be a sign that the market is ready for another brief rally before the Fed's meeting next week.
 
 

18 August 1999 [late night]

A big drop always leaves the market vulnerable to a further decline the next day. The best course for short-term investors is to stay on the sidelines for now.
 
 

18 August 1999 [mid-afternoon]

If the market remains down today, I will be taking profits. The market could easily drift backward from here and test last week's low. The much anticipated interest rate decision by the Fed next week limits the possibilities for significant gains by the stock market at present. Good earnings news is again being ignored, which is a bad sign for the market.
 
 

16 August 1999 [10:00 am]

The market finally responded positively to good news on Friday. That is another important sign that the correction has ended and the market is ready to climb to new highs. However, a new high on broad indices like the NYSE Index is going to require a significant rally. What happens to bonds will be critical.
 
 

12 August 1999 [mid-afternoon]

The market is giving back some of its earlier gains, in profit-taking and probably some selling in anticipation of a renewal of the down trend tomorrow. As long as the DJIA finishes up, or even slightly down, I'll stay in. The models are still suggesting this correction may be over. If the selling starts again tomorrow, we can get out then and wait to see if Tuesday's low holds for a second time.
 
 

12 August 1999 [pre-open]

Excellent performances by the Asian and European markets and a slight gain by bonds overnight bode well for today's action on Wall Street.
 
 

11 August 1999 [mid-afternoon]

Are we done for now? Or is today's big gain (if it holds) just another teaser like the market's last two positive days (7/27 and 8/5), where it immediately  resumed its downward trend a day later?

If the market can hold its sizable mid-afternoon gain, then today's probably a good time to get back in. There's a chance for a big rally in the next few days due to oversold conditions. If the market quickly turns back down tomorrow, you get out with a one day loss and wait for the next opportunity.
 
 

10 August 1999

Short term traders are advised to exit the market immediately! All models are strongly negative, the market is trending very strongly, and the direction of the trend is sharply down. There is no way to tell how far this will go. Get out now!
 
 

9 August 1999

A miserable week, a miserable past month, and a miserable year as far as the broad market is concerned. Between the July 1998 high and Friday's close, the NYSE Index gained a mere 2%. What's to come?

When the market is falling bearishly as it has been (ignoring good news, pouncing on bad news as reason to fall further), there's no telling where the decline will end. At this point last summer, many believed the decline was over. It wasn't.

It will take a rally to new highs on the broader indexes (not the DJIA) before confidence can be restored. But with bonds falling due to rising employment costs (something that has not hitherto been a part of this economic expansion), it would seem the pressures the market is responding to today will remain intact for some time.

It's a good time to be careful if you're a short-term investor.
 

30 July 1999

The market made up its mind after Thursday's report that employment costs rose sharply. There is no telling exactly how far the market will fall. Bonds are leading the way down. In the past two weeks good news has generally been ignored and bad news strongly emphasized.Overall, the market is down for the past three months.

The problem with higher employment costs is that they are a sign that increases in productivity are no longer keeping pace with economic demand. Unable to keep up with orders, companies begin to increase what they'll pay to attract more workers. This causes inflation, which will increase interest rates, which can bring on a recession.

Add to this the fact that this demand boom is largely driven by Americans spending every penny they earn and more over the past 18 months (our savings rate is at its lowest level ever), because they feel wealthy having grown accustomed to a stock market that rises 30% annually--and a federal "surplus" that consists of little more than the tax receipts from that booming stock market--take all of that, and you've got something to worry about. Something that even Alan Greenspan won't be able to fix, if things all go wrong at once.

All the models are negative. But their July was very nice, despite the market's poor showing (report upcoming).
 
 

28 July 1999

Wednesday was a lousy follow-through on Tuesday's burst, casting doubt on the direction of the next move. Will the market now waffle at lower levels than two weeks ago? Will it rise to new records, or is this the start of a correction? We need another significant day before a prediction can be made. The models are mixed. I stayed in, because the trend still suggests a good possibility of a strong upward rebound in the next few days.
 

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