Stock Market Melt Up: November 1998 or December 2008?
Stunning! The S&P500 at its high today was up 20.3 percent from the October 4th intraday low of 1074.77. We’re talking the S&P500, not the Brazilian BOVESPA or Hang Seng Index! This kind of initial move in the S&P500 in just 17 trading days has happened only six times in the past sixty years.
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Today’s move blew through the yearly breakeven level of 1257.64 and the 200-day moving average at 1274, which is now a huge technical support level if the market is going to continue to run.
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The question is where to for year end? Is this the November 1998 melt-up after the Russian debt default and failure of Long-Term Capital Management or is it the December 2008 head fake before the March 2009 bottom? We’re not sure so let’s go to the charts.
The current S&P is in much better shape than in Dec. 2008 as it is now above the 50, 100, and 200-day moving averages. The slope of the 50-day has turned up and 100 and 200-day moving averages are starting to flatten out.
It’s clear from the 1998 chart that the S&P500 was still in a major uptrend, which can’t be said of today’s market. Interestingly the 1998 20.7 percent 17-day spike started with a similar nasty bear trap.
We’re hearing of big institutional inflows into high-yield bonds, which augurs well for risk and dividend yielding stocks. Our sense is we continue higher as the panic for return really gets going into year end. The 200 and 100-day are now important support levels. The market is overbought and should consolidate and the under invested will be buying the dips.
The Euro plan? Lots of unanswered questions, short on detail, and not a long-term solution, in our opinion. But Mr. Market is running over those who wait for the perfect solution and just flattening the macro bears.
Remember, John Bull can stand many things, but he can’t stand two zero percent and will trump almost any rational discourse of the fundamentals once he takes control of the market. Always with a stop, comrades. Good luck!
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October 28th, 2011 at 1:14 am
The “S&P 500″ is no longer a stock market index. It’s a derivative – a bet on a number and its mathematical properties, not an “investment” governed by a model like, for example, the Capital Asset Pricing Model. It’s an abstract time series. Pause for a moment – let that sink in. You’re treating the S&P 500 like something it used to be. It just isn’t that any more.
October 28th, 2011 at 2:05 am
Many mutual fund fiscal years end next Monday 10/31, so the recent run up could be related to window dressing after the brutal sell-off in early August. SPX 1100 support held through September (less one bear trap as noted above).
Santa Rally to 1550?
The monthly bar chart from 1998 looks similar IMO, and we should have a better read on things next Tuesday 11/1/11. Hmmmm — 11/1/11 — All is One, or down we go?
October 28th, 2011 at 3:08 am
[...] – Is it 1998 or 2008? [...]
October 28th, 2011 at 4:56 am
The two of the three “melt ups” with post 3-month positive returns occurred during secular bull markets.
Four out of five melt ups occurring during secular bears were followed by three months of negative returns.
Given that we are still in a secular bear market, historical probability doesn’t offer much justification for aggressive buying now. (But I do strongly advise that everyone jump in “the wayback machine”, and buy 17 days ago.)
October 28th, 2011 at 5:51 am
i see only two things: MAN Financial and Government. Stick to the news and save the bullshit for the tele.
October 28th, 2011 at 6:09 am
Well I think if you subscribe to the adage that the market needs a strong rally in the financials to pull the rest of the market up, then you’re probably in for a bit more of a bump on the Equity side.
During all the craziness, sane people pulled everything in. This then led to a bunch of unintended consequences. Markets are a conglomeration of a whole lot of individual behavior taken together – DUH!
You’re going to a see a lot more people willing to spend money in the next year or two, and that money’s going to have to come from somewhere and it sure as heck isn’t going to be created by a home equity loan.
Therefore, they’re going to need a partner. Would be a good time to be in the money lending biz IMAO.
Sounds crazy given what’s gone on here. Whew this place looks like the cafeteria after an animal house food fight. But that’s my gut.
October 28th, 2011 at 7:02 am
Oh wow. Screw what I just wrote. It now looks like we’re going to have a “Jubilee”
Awesome. This just keeps getting kookier.
Break out the bongos Ma. That crazy guy from Austin’s in the hizzle.
October 28th, 2011 at 7:26 am
Take profits. The fundamentals are bad and getting worse. There are no places left for the credit ponzi to grow. Consumer credit is maxed, student loan credit is maxed and defaults are rising in both. The economy cannot absorb higher prices of anything and demand wanes with these upticks. Any further inflation will destroy margins and most everything else. Wages are flat and real unemployment is up.
We are overvalued and overbought and in bubble land. But all this bearishness can mean we have more room to run as TPTB really believe in the bullshit animal sprint baloney. Actually, it isn’t that they believe it…it’s that it gives them a convenient excuse to print themselves money.
And when it all comes crashing down, I betcha the pissed off millions will want those profits BACK.
October 28th, 2011 at 9:37 am
[...] The Big Picture [...]
October 28th, 2011 at 9:38 am
Question: What is the best way for an investor (not trader) to implement a stop. I’ve been bitten when implementing stops through my broker. I’ve had better luck with knowing my stop, and just selling (or buying), the day after the stop is breached. *** Thoughts?
October 28th, 2011 at 10:43 am
“Is this the November 1998 melt-up after the Russian debt default… …. or is it the December 2008 head fake before the March 2009 bottom?”
I think you’ve just answered the question! Did Greece default? NO! Banks simply agreed to take “voluntary haircuts.” What did we have? A Euro-TARP, aka 2008-style bailout. The system is not “flushed out”, they system has not been “reset” – instead it’s been levered up even more.
So, all things being equal (GDP, geo-politics, oil prices, civil unrest) this definitely seems to resemble 2008, not 1998.