Sand Spring Advisors LLC
The Ugliness Begins
October 22, 2003
by, Barclay T. Leib
Today's decline -- falling smack on top of our previous call for a significant reversal on or about October 22nd -- was pretty unequivocal. The ugliness has begun.
I felt it in my bones as I dove into NYC today in the early a.m., and I felt it even more so when I drove back in the evening and listened to the complete complacency being espoused on Bloomberg Radio by each and every one of its various featured market pundits. After getting stuck in traffic awhile en route, I'm so sick of hearing about a solid 2004 recovery after a potential small retracement that I could puke.
Even the smartest hedge fund managers that I meet on a daily basis can generally be heard buying into this economic scenario. It would somehow seem unreasonable -- perhaps even un-American -- not to. After all, after almost two decades of successfully manipulating the economy between 1982-2000, why is the Fed going to not succeed this time?
But if so many people believe in this, it must be wrong. Only from a few macro managers do I hear a bit more concern...concern about Greenspan being in a corner, caught between structurally unfixable unemployment, creeping U.S. stagflation, high sensitivity of the economy to any rise in interest rates, and a U.S. currency that one day just might collapse from a U.S. trade deficit that is patently unsupportable longer-term.
From here, let us offer two technical perspectives -- one short-term, and one long-term.
Short-term, if the S&P December futures contract breaks moving average support near 1002 on the daily bar chart, then the next stop should be 948 - a non-trivial -7.5% decline from here, and a 38.2% retracement of the entire October 2002-October 2003 upmove.
Longer term, the DJIA weekly chart is even clearer in its Fibonacci rhythm. If the October 3rd low at 9230.50 were to give way, this chart would strongly suggest that at least 6745 will be seen on the DJIA by late 2004. Such a path would certainly fit all of the academic work of Professor Didier Sornette featured on this website in the past, and available here once again. Such a path would also, of course, leave each and every one of the Bloomberg Radio pundits that I listened to tonight completely agog. Sandspring.com's two mottos will never have been so true: "With Ease Investors Believe What Pleases" and "Consensus Conclusions Create Careless Consequences."
On its potential way there, the window between November 23rd-Dec 5th should be our next intermediate cycle low.
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