On Friday March 9, 2009 I was playing golf with some friends on the Merit course in Palm Springs California when I got a call from my trading partner. He said that the DJIA had turned around and rallied over 300 points in the last hour of trading. 300 points is nothing today, but with the market trading around 6600 then it represented a 4% rally in less than an hour. Of course, I was short and was having a nice day until the call.
Markets never announce themselves; they just happen. As it turned out, that Friday, March 9, 2009 was a capitulation bottom. The market has rallied for the past ten years. There have been corrections and mini panics but at some point, the market is going to find a top and it will turn around. A bear market will ensue and the whole process will start all over again. When this will occur, no one knows for sure, but it is possible to see this being a top.
So far, the market has completely ignored all of the political turmoil in Washington, ignored the possible trade war with China and Mexico and the problems with immigration. Instead it has concentrated on corporate earnings, unemployment rates, average hourly wages, housing prices, inventories and all the boring things that economists love. We are now at 50-year highs/lows in all of those categories, and that is the part that brings fear into play.
It has been my observation over the past 40 years that it is at this time that the market should really worry the participants and we have seen that over the past six weeks as the major indexes continue to go lower. There has been little panic selling, but a general malaise with price. The thing that really scares me is the IPO market that is bringing companies to the public that have spicy names and reputations but have never made a dime. While the investors have cashed out there is still no business plan in place to make money.
I hope that I am wrong and “this time will be different”. There will be no “new economy old economy” stocks and any idea that you can get enough people to believe in, will turn into an IPO which will bust out in six months with a lot of angry investors. I see many of the signs right in front of us. As always, time will tell and of course in hindsight everyone will be right!