Sand Spring Advisors LLC
No Easy Answers
February 18, 2002
by, Barclay T. Leib
As longtime readers know, February 19th is a potential minor cycle date of ours. Unfortunately, when we examine the actual price action coming into this date, we see nothing of true signficance. As much as we would like to give an easy answer as to the stock market's new direction, the best we can come up with is that this market will continue to "hurk and jerk" in some fashion similar to that depicted above.
Specifically, given the market's emerging rhythm, we now see the current advance since September 21st as likely incomplete. There is a strong probability that after a bit more immediate weakness into late February, that yet another rally will unfold up towards 10,528. This will be just far enough to give CNBC some reason to cheer and convince some that the bull market is back. But alas, it will not be. From that extrapolated minor high, we see yet another period of disappointment following -- eventually leading to a 8644 low -- just far enough to once again scare the living daylights out of most weak longs. But even then, we don't see the chop abating, as one last viscious rally could bring the Dow back up to 10,793 -- a level that would be our idealized high for the far more important early November 4.3-year anniversary of the July 1998 equity cycle top. The whole of the pattern will represent a huge A-B-C corrective mush.
By that point, most will be convinced that all is safe again in equity-land. It won't be. Instead, a very tough 2.15 years will just be beginning where Americans should learn the true pain of excess debt. The period from November 2002 to early January 2005 will be one of the most difficult periods of "debt deflation" America's markets have ever seen. The ever-rising property market will take it on the chin, as will those who use 90% financing to buy their houses today. As much as people talk about the Enron scandle today, the GSE GMNA and Fannie Mae scandals of this latter period will be far worse. 7700-7800 on the Dow will beckon during this period.
First, though there will be no easy answers. There will instead continue to be many false (even if significant) moves. As a first step in this process, we see immediate market weakness likely to fall no further than 9721 on the Dow before a surprise upside vault suddenly begins.
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