Jan

6

You sometimes meet a very worthy adversary, and she beats you, but regardless of the outcome you respect and admire her for a very well played game. Such is how we all felt about the market this week. So many twists and turns, topsy-turvy patterns, fakes, dodges, lures, snares.

It started while the market was dormant, before the sharp people from the auctions could get involved with a up opening close to the six-year highs, and it ended with a down day — minus 11 points in the S&P futures, the first 20-day low since July 14, when it registered 1264 on an adjusted basis versus today's 1417. A long time between drinks for the bears.

When the week’s play had closed, the Nasdaq was up 1.5%, the S&P lost 1.5%, bonds rose 3/4 point, the dollar gained 1/2% (a staggering up move in the yen/dollar), oil declined some 10%, silver and gold had moved down some 6%, the grains slipped a few percentage points. Google and IBM were near the rounds of 500 and 100, and the VIX had a 15 day closing high of 12.14, coming off of a four month closing high of 12.99, set on the anniversary of that infamous day.

 It would be easy to quantify what happens when such divergences occur, and I am partial to what happens after a few up weeks in stocks are followed by a down week and nice minimums in January. That's certainly a propos and a proper thing for counters. But much more to the point is a bit of horse trading from Ben Green.

What caused the stock market to go up 15% last year? (Aside from the fact that stock yields (with growth) were 6 percentage points or so higher than bonds, as they are this year, and since 1980, there have been nine of nine big rises on such occasions.) It was certainly the big decline in May. It got everybody on the wrong foot. It set up hope among the bears and fear among the bulls. And it allowed the big brokers to make a fast profit before they raised their allocations of stocks and buy recommendations for the techs, the better to make a few billion for the bonus pool without making too much of a dent in the trillions of longs that they must carry at low borrowing rates, that must go up or else by the end of the year.

How would Ben have handed such a situation if he knew that he had to buy some stock before the end of year as they were very much wanted by the breeders in Texas? He would have said, "I think I'll wait until it gets a lot closer to the end of the year, and very much closer to summer before I ever even consider buying and I'm actually very much more interested in selling right now than buying." Yes, that's it. That has to happen, It's what happened in May, and thank goodness all those boys not interested in buying under any circumstances got some help from the Israeli situation in July or else they might not have profited as much last year as they would this year when they buy the stock.


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