Recession Looms…Or A Really Big Rally Is On
the Way (Includes a Review of the Past 12 Months)
By Duru
August 31,
2005
The headlines
are getting heavier than the dark skies over the
All arrows are
pointing down and a recession must be around the corner. If
the Fed has its way with short-term interest rates as it seeks to bust the
housing bubble, we must assume and prepare for some tough economic times
ahead. However, it is often during times
as dark as these that the market finally decides the news cannot get any worse….and
the buying in anticipation of better times ahead begins. It is impossible to say of course which
course lays ahead for us. Even a big
rally could become the last gasp before a recession finally chokes off the last
hopes of the optimists. What I can say
is that things do not look good and few catalysts lay in wait to take us back
into rally mode. The two main saving
graces I can fathom are 1) the Fed declares an end to their persistent campaign
to hold the economy down, 2) energy companies declare that damage from Katrina is
not nearly as bad as they feared possible.
#2 is more likely than #1, and even if a relief rally ensues from #2,
the market will only further pave the path for the Fed to continue raising
rates.
Now that I
have spread such cheer about the coming future, I think this would be a good
time to do a quick review of some of the larger pronouncements I have made in
the past year or so:
NVEC: This stock is down another 50% since I echoed
revelations about the smoke and mirrors used at this company to promote its
technology. Too bad I did not make a single
penny from that call.
Intel: Intel
still trades at higher levels than it did at the time I finally turned from
bear to bull on Intel. I am now neutral
and suspect my worst fears from a year ago
are nowhere close to fruition.
Gold, housing, and retail: Gold has remained in a large trading range
since selling off in late 2004 even as the U.S. dollar has rallied strong all
year. The housing index has put on yet
another 25% in value even as it has swooned over 10% since Fed fears set in
again. The retail index is pretty much
where we left it in December of last year.
NASDAQ: This volatile index of happy-go-lucky
technology stocks has provided lots of drama this year. From toying
with 1999 for the umpteenth time to making a
roundtrip to and from and now back to 2100, the NASDAQ has as expected proven to be an accelerated marker
for the market's imminent direction.
The Dow Jones
Industrial Average: 10,000 proved golden in marking a bottom for
the year. That low has still not
been broken, and my point of maximum
bearishness proved to be a notable bottom for the year!
Steel: Ever since my excitement in steel marked a
notable top in the commodity, it has never recovered. There was a
brief moment of hope and even now steel hangs around like a drunk waiting
for one last round at the bar.
Oil:
I last cooed about gas prices by pooh-poohing an industry report that
showed a marked decline in the demand for gas.
I have been saying it, and I will say it again…the trend is up and will
continue up…at least until all these analysts stop anticipating a rapid return
to $40 or $50 oil in the coming months or year.
It appears now that only an all-out recession will making
these men and women correct….and who wants that?!?
Program Trading: My analysis of program trading showed a
growing occurrence of extremes in volume.
The data suggested that this year's high-volume program trades foretold
of future weakness. Instead, the bombings in London helped to
embolden the market to rally against all the negative headwinds that are
now finally weighing down on the market.
I have been
right and wrong in the past, and I will do the same for the future. My main hope is that I keep you thinking independently
of the media's conventional wisdom and encourage you to always consider
alternative rationales and approaches to these crazy markets. Be careful out there!