主题：10/01/2008 Market View -- 宁子

CHARTS. Before the Monday selloff and even after the Monday selloff we were talking about DJ30 and how it is still in the running for a double bottom here with this being the second bottom following the July low. Still a bit early to make that call but the sentiment levels hit extremes as the lows were made with the massive, multi-hundred point swings in the Dow. I teach in my seminars that trend changes in the market are just like changes in the weather. During the season the weather is calm, in line with the season. There is an occasional storm, but that is in keeping with the season. When the seasons change, however, the weather turns violent. Fronts come and go, warm and cold air collide, dry and wet weather collide, storms spin off. Violent storms as the new season with its different weather clashes with the season in place. When the change is complete the tempests die down. These massive point swings and widely disparate sentiment and internal indicators show there is a season change at hand.

Moreover, when you look at where DJ30 has tested, there is more credence that this level, though maybe not this particular pattern right here, is going to try and act as support. If you look at a multiyear chart of DJ30, this 10,800 level is the midrange of the 199 to mid-2001 range, and it is also basically the top of the 2004 and 2005 lateral move. A stock or index in a major selloff tends to give back the prior run and hold at prior tops. As indicated, DJ30 is at the pre-recession peak and the initial recovery peak following the recession and market recovery. SP500 is basically in the same situation, tapping at the midrange of the 2004 lateral consolidation on this weeks selling. That suggests these indices are at levels where they can find bottom and launch a new upside run. The massive bailout bill, despite its horrible implications with respect to federal government bloat, may be the trigger to the move.

The BIG caveat (you knew it was coming): If this is THE meltdown where all of the past Greenspan liquidity bailouts for 18 years comes back on us in a flood of dollars as foreign confidence in the US tanks, then the support points from the past decade are not going to hold it. There is that massive run from 1995 through early 2000 that was part of the Reagan 'new America' created when his policies helped break inflation, but that 1995 to 2000 move was much too strong for sustained growth and was fueled by the Greenspan era of easy money and a policy of dumping liquidity at any financial hiccup. This credit crisis is of the nature of what we will see some day (and not be able to avert) as a result of that policy of massive liquidity to prevent a recession at any cost. Those billions and indeed trillions of dollars in foreign hands will some day come home. At some point we won't be able to outrun the tide with more massive liquidity injections. At some point that policy won't carry the day and they will dump dollars on us and the currency will deflate and inflation will run wild while our hard assets deflate along with the currency.

If the bailout is enough (fittingly it is the largest ever; it will take more and more each time) then we put it off for another period of time and the market rallies. All is well (except for our children who have to live with a government now in our financial institutions, a position it will be loathe to give up and of course the ultimate reckoning) and our cars and homes are safe for now. IF the bailout is not enough, however, the Dow goes down to 7000ish near term. If we take the wrong steps and don't spur the economy in the RIGHT way, e.g. marginal tax rate cuts, tax credit incentives (R&D, business capital equipment, personal investment/savings), zero capital gains tax, zero or low corporate taxes, then we suffer a sharp and deep recession that takes the Dow to the 1994 levels just below 4000 as ALL of the Greenspan liquidity fixes are overturned. That would not even do it all, but that would be enough. If SP500 follows that would take it down to 460ish with a stop at 750ish along the way.

As you can see, the stakes are big. Huge. Our point: If this is THE big meltdown, then the bailout won't fix the problem. The problem is a debased currency through excessive liquidity. The bailout only adds more liquidity on top of worthless mortgage assets, basically liquefying bad assets to make them appear valuable. The way to fix that is to let the bad assets go to zero as they should and not divert good money after them. Instead, use that money to incent real capital investment in the US to create new technologies and assets once again just as in the early 1980's when we came back from the brink after 16 years of huge federal expansion and regulation that choked our economy and our entrepreneurial drive. We need to get us back to investing in real assets in the US, not 'no doc, no credit, nothing down' mortgages that were not worth the paper they were written on.

LEADERSHIP. Strong financials, not all, are looking good. These are the ones without the crap on their books and they are looking solid; the bailout won't hurt them at all. They are getting all the money because of their strength. Homebuilders are still setting up just fine. Some health care/medical remain strong. Food purveyors, at least some of them, look pretty good (PEET, MCD, SNS). Food makers/processors also look decent (CPB, KFT). Those latter groups are not frontrunners for a strong economy. A definite mix of defensive and growth/early cycle stocks. Shows the market's indecision. Want to see new leadership groups stepping up. It doesn't help that transports, early leaders in the economic recovery story, look to be rolling over.