We
have now come to one of those rare historic market points.
To be a little trite, we are at the moment of truth.
What I believe is coming...
by Chuck Cohen
In recent days,
the market has been almost totally obsessed with the Iraq situation. Now with
the strong hint that military action has been indefinitely postponed, the market
should now draw in those who have believed the false assumption that Iraq has
been the root cause of the market’s sloppiness. Coupled with an oversold
market condition and a growing expectation that military action would not be
forthcoming, the market bottomed on Thursday and then continued its sharp rally
on Friday. I expect that we might see some pretty spectacular relief buying
and short covering on Monday and perhaps, Tuesday. This sharp rise will clear
the air for not just a resumption, but an acceleration of the collapse, one
which has still been absent in spite of the tremendous damage done to the stock
market. Note that throughout most of the past two years decline, most of the
100 point plus days have come, amazingly, on updays not, as we would expect,
on the down days. Likewise, most of the 1000 TICK numbers have been plus not
minus. This are just indicators that this bear is treacherous and unlike anything
in our experience.
The current
situation is very reminiscent to the one in the Spring of 1974. At that time
the market had declined for well over a year, and the whole Watergate mess overhung
the market. Just as today, there had not been a time of capitulation, and then
President Nixon’s decision to resign or not became the public excuse for
the poor action in the market. Finally, when President Nixon resigned, a very
brief relief rally ensued, only to be followed immediately afterwards by a relentless
decline over the next several months. Capitulation set in, and by 1982 almost
no one had his money invested in the stock market.
A bear market
of this duration and severity does not end conveniently. It will not allow those
who have foolishly plunged in and held on to avoid the pain and sleepless nights
that come from not knowing when and how it will all end. At the end, the overriding
concern becomes will I miss the next bull market but will I survive.
Since most advisors and players have never gone through the terrible experience
of a genuine bear market such as in 1973-74, they don't understand that part
of a bear’s personality is to trick the holders into believing that the
end is near and therefore it is too late to sell at these levels. But, the reality
is that a final, cathartic phase MUST and WILL come. At that point even the
most pollyanish advisor and confident person will be out of the market vowing
never to go back in again
Throughout
this entire decline, there has been a total absence of this admission by the
public and the Street that the stock market has been the wrong place for investors.
I have not seen one public bull who has genuinely turned negative. The public
and official slant has been that if we did have a recession, it was historically
brief and we are now in a recovery phase. Therefore, there is no reason to sell
at this levels since the danger is not being in the market not out of it. That
is why we have these sharp rallies and gap ups that disappear as quickly as
they come. Expect a new, more dynamic phase to enter soon. It will be frighteningly
swift and it will totally demoralize those who have stubbornly held on. There
is a disaster in the wings.
Gold
Now the flip
side. In recent times, gold has traded contrary to the stock market. This should
not be a new concept to you. Almost all of the readers of Lemetropolecafe have
been schooled on the attributes of this metal and its role as truth and stability
in a corrupt economic system of manipulation and greed. I am certain that is
why you subscribe. If you turn over the stock market charts from 1971-1974,
you will discover a tremendous tight correlation. It is not an accident that
the very week that the stock market made its primary bottom in August of 1974,
the gold shares began to crash. Likewise, it is not a coincidence that at the
very top of the bubble in 2000, the gold shares were about to make their bottoms,
although most of them didn't finish their lows until the next year. Since then
this relationship has remained extremely tight and predictable.
It is possible
that with the perception that Iraq is going away, the golds will attempt to
sell off and draw in new shorts. The public perception will be that it is over
for gold. Expect to see and hear this point of view expressed very publically
over the next few days. The gold bears will come out of hibernation and confidently
ridicule those who have bought gold or the shares. They conveniently forget
that gold has been moving up far before Iraq became a market issue.
Finally, what
separates successful investors from those who always seem to make the wrong
decision at critical times is the understanding that rare occasions such as
this one presents an unique opportunity to take action. In the case of the stock
market, to see this an opportunity to finally unload those shares they have
been wishfully holding and instead perhaps finally buy The Prudent Bear Fund.
And in case of the golds, to resist the impulse to sell along with everyone
else and, rather buy on the weakness, if indeed it comes.
Remember the
panic selling in July. How many of you wish you had bought the golds on weakness
rather having been the seller that made those bottoms. Be prepared. Don’t
let what is going to happen take you by surprise. I am certain there is a destiny
for those of you who have found this site. It will come in ways that you may
never have conceived. If you have any questions or need professional help, please
contact me at
ICNNY@AOL.COM
Chuck Cohen