The Market Has Whipsawed But Is There No U-Turn

I anticipated this morning’s dive (see “Difference Between Correction/Consolidation and Reversal” of August 7) doesn’t make it feel any less like getting whiplashed. A couple of weeks ago, I wrote:

Today, the Index bounced up against what could potentially be the top of what we might later understand to be the traders’ remorse correction or consolidation. The market might straddle the 300-day MA like it straddled the 200-day. It could end back at 950 just about the time that a traffic jam is created as the 4 moving averages converge with the neckline. That could be around Labor Day or mid-September and could be a glorious day because it would technically mark the true beginning of the Next Bull Market…..As the bears begin playing their dirges at the death of the bull market, look to see what sort of pattern the Index is making before selling all your stocks, buckling up and reaching for air masks. This plane isn’t going down yet; I hope, it won’t land for quite a while.

While the market is taking a beating in early morning trading, so far it’s tracking along the 300-day moving average heading towards that 950 convergence around Labor Day. As uncomfortable as it feels, I’m sticking to that game plan unless and until I find that the 950 support level is broken.

But that doesn’t explain or excuse what seems to be “market amnesia”? Weren’t we constantly being bombarded with warnings about what damage the historic Federal deficit was going to do to the world standing of the $US? Weren’t we concerned that Foreign countries were going to no longer accept the dollar? Wasn’t China looking to find another reserve currency to replace the $US? And how about all the hard commodities like steel, copper and aluminum that China was accumulating in anticipation of their burgeoning economy?

When the market behaves as it did this morning, it’s hard to sort fact from fiction, reality from fantasy. Things can moderate but they don’t often or usually make u-turns and when they do, it often seems to point to a common underlying factor - foreign exchange.

The exchange value of the $US often causes this sort of major turbulence. For example, almost exactly a year ago to the day, on July 14, 2008, the $US began rising overnight after it had declined in value by 22% over the previous two years as documented in “Central Banks’ Markets Intervention“. Eight months later, in February 2009, the value of the dollar was nearly at the same level as it was when the decline started in 2005 when it started to retrace and regained nearly half the rise.

I just can’t shack the feeling of conspiracy and coordinated Central Banks’ intervention for reasons we can’t fathom or explain and won’t see until several days or weeks later whenever there’s such an abrupt and dramatic reversal of trend.

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