1. Rallies at the End of a Bear Market and the Parabola: Last night I made a distinction between dangerous parabolic moves and the parabola experienced in the market averages since the March lows. Cramer Discusses Parabolic Rises/My Prior Discussions of Selling into Parabolas The key distinction is that the current rally has occurred after severe market losses, rather than as part of a move in the dying stages of a bull market. It is important to put the parabola in context when making a classification. What occurred before the formation of the parabola?
In August 1982, it was not known that the long term secular bear market, which started in the 1960s, was coming to an end, and a new long term secular bull market in stocks and bonds was about to begin. The move was swift, as the S & P 500 average moved from 103 in early August 1982 to 170 in June 1983. I would call that move a parabola, but not a dangerous one. The way that parabola cured itself was not with a 50+% correction, a more normal reaction to the dangerous parabola, but with sideways movement for several months, followed by a mild correction ending in July 1984. The market then took off again until the October 1987 crash. The dangerous parabola will resolve itself with carnage in prices, whereas a parabola coming out of bear market will need a minor correction and/or some sideways movement, as earnings and the economy hopefully confirm the end of what caused the bear market.
This is not to say that we are starting a new secular bull market, or that we are about to repeat some other pattern that marks the end of a bear market. Instead, the point is simply to draw a distinction between parabolic moves, by highlighting one coming out of a bear market and comparing it to an acknowledged dangerous one such as the Nasdaq move in 1999 which occurred at the tail end of a bull move starting around 9 years earlier. The Nasdaq average was around 344 in September 1990, 2193 in December 1998, and 5000 by the end of 2000, similar to the kind of move seen in the Nikkii in 1988-89: NIKKEI 225 Index Chart And, where are those averages now? The Nasdaq average closed at 1930.84 yesterday, 8/17/09, and hit a high almost 10 years ago of 5,048.62 on March 10, 2000.
2. The Home Depot: The market appears to me to be in a manic depressive stage now. Yesterday, a deeps sense of doom and gloom permeated its spirit worrying about consumers never returning to the table with the wallets open. With the better than expected Home Depot earnings for the second quarter, the darkness has lifted, joy has returned, spirits have been lifted, and all is well, at least for today. Excluding items, HD earned 64 cents compared to the consensus forecast of 59 cents. Sales did fall 9.1%, but that has to be expected under the circumstances. Home Depot also raised its fiscal year forecast. HD lifted its EPS guidance for fiscal 2009 and "now expects earnings per share from continuing operations to be flat to up 7 percent from last year". The last forecast was flat to down 7%.
3. New Residential Construction: The market had some cold water thrown on it when the Commerce Department release the July numbers for new residential construction: /www.census.gov The number was worse than expected, showing a 1% decline in housing starts, seasonally adjusted from the revised June number. More importantly, the July 2009 housing start number is 37.7% below the July 2008 number, so new housing construction is still in a very deep hole.
4. Identity Theft: It is amazing to me how easy it is steal confidential information. The recent story about a hacker stealing information on a 130 million credit cards is just the latest in a long list of such disclosures. Indicted suspect allegedly breaks record for credit-card data theft - CNN.com That is only one way for criminals to steal information. A few years ago, I was checking my credit card information online, and could not gain access to it. I called up the credit card company and was notified that I had changed my name and password. And, I had just moved to Wisconsin, and had just bought $500 or so of merchandise in some city in Wisconsin. Someone had acquired just my basic information, including social security number and credit card number. With that information, they were able to go online, change the log in information, change my address, and had done all of that at the end of a billing cycle. Fortunately, I caught it within a day and it was stopped before they ran up more charges. I found something out then though that I view as important. The credit card company seemed almost disinterested in finding the culprit, and I was grilled as if I was the culprit, even though I had had a Mastercard since 1976 and had paid my bills in full every month since that time, never borrowing one cent. So how did it happen? I do not know exactly but I had just paid a bill for a test at a local Nashville hospital by writing my credit card number on the bill with the expiration date, authorizing payment, and the hospital already had the other information. Your social security number is known by a large number of people. It is just a question of time before it falls into the hands of a criminal who can combine it with other information to steal your identity. Once that happens, you will be spending a lot of time trying to straighten the mess out that you did not cause. In the last analysis, I spent more than $500 correcting the problem including my time.
My reaction to the theft was to lower my credit limit by about 80%. If I had to deal with the problem again, I would not want to deal with a 30 grand theft having just dealt with the card company on something that was less than $500 that I caught in one day. You would think that I would have been thanked, a 30+ year customer who has paid all of his bills and caught the theft in one day on my own initiative. You would be in error in drawing that conclusion. Another precaution, which I have in place, is to pay a service $4.95 to alert me to changes in my credit report such as a change of address. I also access my credit reports at least once a year to review them, and this can be done free of charge. I have always shredded financial information before throwing it away, as well as those frequent credit card applications that come into the mail. I have always been careful and cautious, but that only protected me up to a point.
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