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Grizzly's
Growlings Back Issues
Monday
Morning Market Musings 10/19/98
52 Pickup
The good news for the bear case is this rally, as well as the prior seven weeks of consolidation, continues to appear corrective and countertrend. The main trend continues to the downside. The swift and sudden rally may be a classic false breakout; a trap prompted by a high profile news event. Moreover, the technical condition of the market is extremely overbought. The stage is being set yet again for a crash. Whether the Fed can hold it off for much longer is the question.
Friday’s close of 8417 is not just another random number closing -- 8417 represents the exact midpoint of the 1900 point drop from the July 20th peak of 9367 to the October 8th low of 7467. Counter-trend rallies often stop on a dime at or very near this 50% retracement level. The brief fireworks to the upside, after seven weeks of consolidation and contraction, may be very close to ending. The next leg down, that much awaited Elliott Wave 3 of 3, will be the destructive crash of historic proportions that we’ve been anticipating.
US stocks remain on FULL CRASH ALERT!
Apparently Alan Greenspan & Co. felt compelled to kick in the booster rockets to follow up on the September 29th disappointing quarter-point cut in the Federal Funds rate. Unlike September’s easing, this time the Fed did also cut the discount rate, by 25 basis points.
Greenspan made sure the Bears didn’t reap any irrational profits from the October options, which expired Friday. He killed the October puts, but he can’t kill this Great Bear Market.
The question of course is "What does Alan Greenspan know, and why isn’t he telling the rest of us?" Are the Latin American dominoes starting to topple? Is the US economy collapsing that fast? Or is it just another hedge fund or two getting their quills plucked? Or maybe the Fed has finally sniffed out the real poop: the entire global financial house of cards, including the formerly rock-solid aces of Merrill Lynch, Banker’s Trust, Lehman Brothers, and others, is one flick away from 52 Pickup.
We said two weeks ago: "Hedge fund Long Term Capital Management is but one casualty with many more to come." Ellington Capital Management is the next victim, on life-support in the back of the ambulance. The question is do they bother to stop at the emergency room, or go straight to the morgue.
This formerly highly respected high-flying fund was leveraged up to its eyeballs in mortgage-backed securities of every flavor. However, there's no need for a Fed-induced bailout for this dog -- Thursday’s interest rate cut relieved the financial pressure and relegated Ellington’s fate to the back pages. Good job by Greenspan & Co of diverting our attention.
John Crudele of the New York Post comes up with a couple of more winners, keeping pace with the New York Yankees.
[articles deleted]
From the "fool me once, shame on you, fool me twice shame on me" files: The Kremlin reported last Monday that Boris Yeltsin has "a cold." Yeah, so did Andropov. So did Chernenko. So did Breshnev. So does the Russian economy.
The markets are mixed going into Monday morning trading on Wall Street. At press time at 2:00 am EDT, the Nikkei 225 was sporting a 250 point gain but the rest of Asian was weak. S&P 500 futures trading on Globex are essentially unchanged from Friday’s close.
This week’s parting shot comes from Bear Good-Guy Bill Fleckenstein, in his Market Rap 10/16/98 column:
"It
is very rare that you can be as
unqualifiedly bullish as you can now."
-Alan
Greenspan
Townsend Greenspan & Associates
NY Times January 7, 1973
"This was two days after the all-time stock market peak (until 1983) and the stock market collapsed by 40 percent over the next two years. We were also heading into the worst recession of the last 50 years. How much faith do you want to place in the Fed Chairman?" asks Fleckenstein. Damn good question, says Grizzly.
Grizzly
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