Monday, March 8, 2010

NASDAQ Trading at 18-Month highs; S&P Streak Ends at Six

A year ago tomorrow, the NASDAQ bottomed out at a closing price of 1268.64. With today's finish, it has gained a whopping 84% from the low, so, one must ask just how much more upside is there left?

Investors seem to be pondering that on a daily basis, picking stocks with much more care than in the pre-Lehman days, another level the NASDAQ has surpassed. The last time the index was at this level was September 3, 2008 (2333.73), but it is only 18.5% below the high of October 31, 2007 - the last market top - of 2859.12. It's difficult to imagine that the investments underlying the NASDAQ would be worth 81% of what they were before the market collapsed and the world realized that asset values were over-inflated, but, apparently, the mindset of the typical trader in tech believes in the marvels of technology and the value of equity in these companies.

Being realistic, any group of stocks which gains 84% in a year is probably overvalued, but the inverse is also probably true: that the same group of stocks should probably not have lost 55% in value over an 18-month span. Since neither of these scenarios are normal, the idea that the stock market is in the middle of an extraordinarily perverse period would be an astute observation. When normalcy returns (whenever that may be, possibly never), a reversion to the mean would be the order of the day, putting the entire NASDAQ market at a level approaching the midpoint of the extremes, or, right around 2063.88.

The timing of such an event would again be conditioned on the time-lines of both the fall and subsequent rise: 18 months to the downside and 12 months of gains, making the midpoint to attain equilibrium at half of the derivative times of those, or 7 1/2 months from tomorrow (the midpoint between 6 and 9 months). Checking the calendar, we should expect the NASDAQ to close around 2063 on or about November 10, 2010. (Make sure to mark that date and this post and check back)

The preceding was issued to show just how absurd and arcane any and all quantitative or qualitative analysis of the markets can be. You can go ahead and believe the concoction that spewed out of the top of my little pinhead or just chalk it up to more internet nonsense. The upshot is that I'll probably end up being as correct with my prediction than 50% of the other analysts, name-droppers and outright frauds who populate the stock media today. It gets worse with forex and options trading, so, consider yourself lucky that you are only invested in equities and thus, only mildly confused.

Dow 10,551.91, -14.29 (0.14%)
NASDAQ 2,332.21, +5.86 (0.25%)
S&P 500 1,138.31, -0.38 (0.03%)
NYSE Composite 7,291.58, -0.27 (0.00%)

Advancing issues outdid decliners by a margin of 3676-2857. New highs hit an expected extreme of 806, compared to just 70 new lows. The number of new highs should peak tomorrow or within the next few days at somewhere North of 850, but probably no higher than that. Once we cross the Rubicon that is the one-year anniversary of the market bottom tomorrow, all comparisons become more difficult. Gains will surely be difficult to attain and the chances for a major correction - or a mean revision, as outlined above - increase every day these lofty equity levels are maintained.

One should bear in mind that 2009 was witness to the most powerful stock market rally most of us will ever see in our lifetimes. Comparisons to earnings during that period when companies had cut staffs and expenses to the barest of bones will be particularly challenging. The time to exit the market is, if not now, shortly, unless you are fully recovered from the shocks of 2008 and early 2009 and still liquid. Then, shoot the works. Hang on until the end. Hey, it's only money. Your money.

Volume today was reportedly the lowest of the year on the consolidated markets. That should raise at least one eyebrow toward thinking that this latest rally off the small January-February correction are close to making a double-top. The NASDAQ is already in the process of making a double-top breakout, though the S&P and Dow are lagging, still below the early January highs. Likewise, the Dow Jones Transportation average has yet to confirm, though with Warren Buffet heavily invested in that sector, it's probably only a matter of time before it launches to new highs.

On the other hand, seasoned pros will take one look at the charts and tell you that you missed the move. They'd probably be right.

NYSE Volume 4,092,305,250
NASDAQ Volume 2,096,990,000

Oil continued its dazzling run to higher prices, up another 26 cents, to $81.76. Gold, however, slipped back $10.70, to $1,124.50. Silver also fell by 11 cents, finishing at $17.27.

Economic data is very light this week, and since we're close to the end of the quarter, earnings releases are practically nil. There isn't much to trade on these days except sentiment, which has grown to about as positive a level as we've seen in three years - perfect timing for a sell-off.

Buy tools, plant seeds, grow your own investments.

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