Ho Hum, Another Bear Market Summer Day

Richard Schwartz — Fri, 20 Jun 2008 14:08:00 GMT

UPDATE ON THE STOCK MARKET. Witten Friday, June 20th, 2008: 6:30 a.m.

Looked to me like yesterday’s stock market rally was a knee-jerk reaction to China announcing it was going to raise oil prices by 17%. Crude dove on the news while stocks jumped. But if one thinks it through, is China raising oil prices really such good news? The bullish knee-jerk was that higher prices for gasoline in China will mean lower overall oil demand from China and that will reduce oil prices globally. As we’ve been hearing a lot lately that it’s government subsidized gas prices in China, India and many other developing countries that isn’t allowing crude demand destruction to occur and thus lower global crude prices. I mean Americans drove 30 billion fewer miles from November through April and that hasn’t lowered prices. The bullish train of thought continues that if the world gets lower oil prices, everything will improve. But, with further thought, if gasoline prices go up in China, won’t that cause demands from Chinese workers for higher wages? I mean the very last thing that the current communist Chinese leadership wants is any revolution from the Chinese people. Already, super big picture investor and Chinese advocate Jim Rogers says its inevitable that China’s government will go capitalistic over time, what with the Chinese people getting a taste of free markets for the last decade or so and realizing that free markets are the pathway to future wealth. Remember: “To be rich is glorious,” is the Chinese people’s new mantra. Hm? … and won’t higher Chinese wages mean higher Chinese export prices, thus higher import prices for us here in the US since we import tons and tons of stuff from China? And thus higher consumer goods prices intensifying the already ongoing and tightening squeeze on US consumers? We’ve had stagnant wages for many, many years with no light at the end of that tunnel and now we’re seeing higher prices for just about everything; food, fuel, health care, taxes, etc. Guess the still entrenched bulls figure lower crude will lead to lower gasoline, diesel, heating oil, and food too, eventually. And since the trend is the thing in the stock market, meaning the markets start discounting immediately upon seeing a new trend emerge, stocks rose yesterday. Still, is a gas hike in China really going to bring down global energy prices? I mean China already raised gas prices late last year and that didn’t bring prices lower. And we now live in a very globally competitive world as all countries and regions want to secure their energy and other needed mineral futures. And food futures too now after the recent global rice shortage has exposed the fallacy that it’s ok to depend on other countries for food staples. Anyway, the first thought was that lower oil is good for stocks and thus the stock market got stronger as the afternoon proceeded, led by lower energy beneficiaries such as the Dow Transports. But while I turned bullish on the Transports back in late March, after technically it broke three fan lines and formed a Head & Shoulders Bottom, I’m now bearish on the group after the two-month dead cat rally ended and the transports formed a bearish, rarely seen Broadening Top, an indication of loss of intelligent sponsorship and leadership. Thus I would certainly use yesterday’s nice bounce back in the trannies to get out if you haven’t already. And, for aggressive traders, if you can find a way to short the transports, I’d do so in a small way now. Schwartz View: Again, yesterday seems like just another bounce in a larger bear market environment, caused by entrenched bulls who refuse to admit the primary trend has now changed and is now pointed downward. The problem with this bullishness -- investors refusing to admit they are wrong, a terrible habit in the stock market! -- is that it indicates we’re still in the early stages of this bear market. Again, safely position yourselves and, unless you’re a trader, take the summer off. Of course, keep reading my letters. Why? Well, let’s see, to improve your knowledge base of how the stock market works and to make sure you don’t miss the opportunity to get back in. Bear markets do have endings. The last Mama Bear market, 2000-2002, ran for slightly less than two years with the most damage coming in the 2^nd year. The last Papa Bear market, in 1973-1974 ran for two years. And that very famous big bad Papa Bear market, which this one is looking more & more like, ran from 1929-1932, or just under three years. So all bad times do pass.

Principles of the Stock Market : Recessions, Gasoline, Macroeconomics, Chart Patterns

Ho Hum, Another Bear Market Summer Day