Fed cuts, all markets up

q1031.pngThe Fed cut rates as expected, and as expected the markets gyrated, first down, and then up sharply. Gold hit $800 in the electronic session. Stocks gyrated around trying to interpret the Fed non-news, and then finally decided to go higher, with the Qs leading the way up 1.42%, while the DIA was up .89%, and the SPY up 1.05%. The pit gold contract closed up 8.20 or 1.04%, however that closed prior to the Fed announcement, so the electronic session is currently up $12.10, up 1.54%. Volume increase from what it was the last couple of days. On the chart to the left I still have the lines depicting the possible broadening formation. You can see the bar today clearly broke above resistance. Since momentum and trends had been up this was no surprise.
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The chart to the right shows a huge parabolic uptrend. It is typical of many of the Chinese stocks, as well as a small handful of tech stocks. The bar to the right shows a blow-off after an exponentially accelerating move. The chart is a weekly chart. I left the names and dates off the chart. During the week on the extreme right side of the chart I recall analysts not the least bit concerned about the exponential character of the price move. The fundamentals causing that move started becoming well known. Those now known fundamentals were used as a reason why this exponential move still had a long way to go.
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Here is the same chart, this time drawn as a monthly chart to show more data. The move up on the left side of the chart is the same as the weekly data in the previous chart. The move ended in a bloodbath, taking prices all the way back down where they started. If you check the dates you will see that this collapse had nothing to do with the tech bubble burst in 2000. This stock is Iomega. Almost everyone I knew was playing this game and making much money. Not a single person that I knew walked away with any profits. Most pyramided on the way up, with a few on margin. Some wiped out their whole trading account on this one stock. At the top there was no downside. Anyone suggesting that this stock could ever fall was quickly ridiculed.
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Here’s another example. This is very similar. The upmove starts off gradually and then accelerates into a parabolic upmove. At the very top all the bulls where at their most vocal, trying to convince everyone that this was still a good time to jump in. Any negative talk was quickly ridiculed. When anyone would point out the near vertical uptrend, the analysts would point out all the fundamentals that justified the sky high price of the stocks. Here’s what happened:
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This was AOL adjusted for the merger with TWX. This one did collapse when the dot com bubble burst. It retraced nearly the entire previous upmove. There are numerous other examples with similar outcomes.
I know many will point out that this time is different because this time there are earnings behind the Chinese stocks, and the handful of parabolic tech stocks, and oil and gold will just keep going up because……. I just read the charts. The fundamentals are in the price. I’ve studied thousands of charts and have yet to see a parabolic move that doesn’t eventually come back down to earth. Of course that word “eventually” is the problem. It is very hard to pinpoint when the bubble will pop.
I changed my graphic in the upper left corner of this blog. I think this picture better represents my feelings about most of the stocks and commodities getting all the attention.
Some of the commodity related markets had a shakeout yesterday. Many of them, such as oil and gold reversed back up today and went to new highs. As long as the trend is up as defined by the regression line, I will hold myself back from going short. But I still view many of these markets as very dangerous. They may well continue higher. In my view they will just get more dangerous.

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