Sand Spring Advisors LLC
One Most Irritating Path
October 28, 2003
by, Barclay T. Leib
As California burns, how ironic is it that the sun is experiencing its largest solar flare activity since 1859 -- 144 Fibonacci years ago. It would seem a strong example of the old Summarian adage "As above, so below."
Meanwhile, as far as the markets are concerned, let us put forward at this juncture two propositions.
Proposition 1: If everyone believes in a 2004 economic recovery (which leaving aside a cynical European community, most U.S. folks do) 2004 as a whole could easily serve up the nastiest of market declines.
Proposition 2: Before people see this decline coming, the market will do its utmost to hurt and discourage the few shorts who truly believe in it, and encourage equity bulls who myopically believe that a 2004 equity decline into a major Presidential election just won't be allowed to happen.
With these two propositions in mind, the "pattern match" below between the former topping pattern in USD/CAD and the current S&P chart hit us this morning as still possible. Within what we will simply call a "sloppy topping pattern," is the "Point 5" analog high on the USD/CAD chart already in place on the S&P chart? A few days ago, we thought, yes. Now we are less sure. Perhaps it is, or perhaps not. If our blue-lined path were to transpire, it would certainly be the most irritating path for both bears and bulls alike. Short sellers need to be psychologically prepared to deal with this if one more new marginal high up toward 1062-1068 on the S&P were to transpire.
Don't get us wrong: we remain bearish overall. But we must allow that the path of reaching our end-vision could continue to be excruciatingly slow. For now, every time the market begins a stumble, follow-through remains elusive. And every time that we fail to cleanly break down, CNBC commentators get more time to pontificate further about the impending recovery -- thereby re-enforcing general expectations for such.
At the end of the day, did it matter much whether one was short USD/CAD at 1.60 or 1.6170? No. Prices in the 1.40's (and below, as it turned out) for USD/CAD were still in the cards as we predicted back on December 9, 2002. So too do we now struggle with similar "short-strokes" on the S&P, trying to ignore the short-term noise, and keep our eye firmly on the big picture.
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