“Everybody’s Happy!?”
by Jeffrey Saut, Chief Strategist, Raymond James
November 8, 2010
... “Money managers are unhappy because 70% of them are lagging the S&P 500 and see the end of another quarter approaching. Economists are unhappy because they do not know what to believe; this month’s forecast of a strong economy or last month’s forecast of a weak economy. Technicians are unhappy because the market refuses to correct, and gets more and more extended. Foreigners are unhappy because due to their underinvested status in the U.S., they have missed the biggest double play in decades. The public is unhappy because they just plain missed out on the party after being scared into cash after the crash. It almost seems ungrateful for so many to be unhappy about a market that has done so well . . . Unhappy people would prefer the market to correct to allow them to buy and feel happy, which is just the reason for a further rise. Frustrating the majority is the market’s primary goal.”
... Robert J. Farrell
Bob Farrell was Merrill Lynch’s esteemed strategist for decades. He penned the aforementioned comments in September of 1989 after the D-J Industrial Average (DJIA) had risen from that year’s January price of 2100 to its September high of 2791 without any meaningful correction. Accordingly, those investors waiting for a pullback to “buy” were frustrated. Similarly, present-day investors are pretty frustrated as the DJIA has leaped from its August “low” of ~9940 into last Friday’s high of 11451 without any significant correction. The recent “Buying Stampede” began on September 1st with a 255-point Dow Wow and has continued for the past 47 sessions without anything more than a one- to three-day pause/correction before resuming the onslaught. The latest upside skein has eclipsed the 38-session march into the August 1987 “highs” that preceded the crash, as well as the longest “Buying Stampede” chronicled in my notes of some 40 years. Over the decades I have come to trust my “day count” indicator because it has worked so well. As stated in past comments, it is rare for a “Buying Stampede” to extend for more than 30 sessions. That is why I wrong-footedly turned cautious, but not bearish, on day 33 of the stampede (October 18th) with the DJIA at ~11159. Since then, the senior index has still not experienced anything more than a one- to three-day pause/correction; yet, has also not really moved significantly above the October 18th intra-day high, that is until last Thursday’s 220-point Dow Delight.
Indeed, last Thursday’s triumph broke the DJIA (11444.08), as well as the D-J Transportation Average (DJTA/4923.40), above their respective Spring reaction highs of 11205.03 and 4806.10 respectively, thus rendering another Dow Theory “buy signal.” That signal reconfirmed the Dow Theory “Buy signal” I wrote about last July and continues to suggest the trend of the stock market is bullish. Still, Thursday’s session failed to qualify as another 90% Upside Day because while Points Gained exceed the 90% threshold, Up Volume didn’t, coming in at 89.3% of total Up/Down Volume. Nevertheless, since the late-June “lows” there have been ten 90% Upside Days, accompanied by strong Advance-Decline readings, reflecting the durability of this rally. In fact, the New York Composite Advance-Decline Line is well above its April rally peak and Lowry’s Buying Power Index has risen to a new rally high, while the Selling Pressure Index tagged a new reaction low, late last week. All of this only reinforces my view that any correction will be shallow and brief.
The explosive rally from the June “lows” has lifted the DJIA by some 16%. Meanwhile, the Dollar Index ($USD/76.76) has surrendered roughly 16% from its respective June high into its recent low, causing one savvy seer to exclaim, “Are stocks really going up, or is the measuring stick going down?!” Clearly, that is a valid question. Yet, my sense is the U.S. dollar “sell short” trade is getting profoundly crowded. To wit, I was on a number of TV shows last week where other pundits were beating the greenback like a rented mule. Most of their comments centered on the statement, “the dollar is worthless,” to which I replied, “If so, why don’t you send them to me!” To be sure, while I too am a long-term dollar bear, I think the dollar’s dive is long of tooth and believe it to be near a short/intermediate-term inflection point. Verily, I am confident the Dollar Index will not violate its 2008 “lows” located between 71 and 73, at least in the short/intermediate-term. If correct, a reversal in the dollar’s misfortunes might imply a pause/correction for my beloved “stuff stocks.” Inferentially, both of those thoughts gained traction over the weekend since Barron’s cover story was, “China’s Sure Bet.” The byline read, “With the dollar vulnerable, China for the first time is investing more overseas in hard assets, like copper, oil and iron, than in U.S. government bonds.”
