Wall Street Nightmares Ending; or Just Interrupted?

The Nightmare on Wall Street . . . hasn't ended, though a unanimity of bearishness makes one ponder when something beyond a series of unsustainable intraday rallies occurs. For now the mood overall remains as solemn as Bloomingdale's this morning (from what we heard) where you could fire a cannonball across the first floor without hitting anything. The intercom even came alive with an offer of '20% off' anything for all in the store; which of course didn't cost Bloomie's much; given so few customers.

Does that mean the economic slowing is nearing an end, or simply getting started? A very good question, as consumer practices have not radically shifted yet; nor did they immediately after the 1929 'crash' (for those not in the securities industry), just as an example of how meaningless Government assurances that little has changed are in such situations. Here, we had an economic and market rebound early in the year, as you know (the targeted January Effect), and a subsequent forecast February drop of a greater magnitude than probably anybody expected, for a particular short-term hit.

The tricky part here is going to be not whether retirees change their conservative or frugal patterns (that normally dominate the sector), or whether teenagers buy lesser amounts of non-essential items (outside of clothes, which they always swear to need more of); but whether the prime wage-earning crowd in the (broadly-defined) ages of 25-65 contract their eating-out, car-buying or house-shopping, this Spring and later.

So far they are generally maintaining their patterns, though there are hints of slowing. The Bloomie's story (from the wife of a Wall Streeter we know) and low occupancy at upscale Florida hotels we've heard of (and reduced cruise ship bookings too), typify a type of spending contraction that if expanded in the months ahead would heavily rock the very foundations of this economy. So far, other than a story from Connecticut, the upscale car-buying crowd hasn't retreated meaningfully, and the low-end automobile business isn't drying up; nor are sales of the better consumer electronics products, at least among newer devices. Nevertheless the consciousness of where this may head is clearly growing, though of course the markets will bottom before the U.S. economy.

The question is whether that's in the next Quarter or so, and we suspect not (for the economy), which is why we believe that the markets will remain tough, but that right in the midst of consumerist worries and poor earnings, there will be another turn-up by this market. For now, even bears are having a tough-go in this market, as nervous short-sellers are generally loathe not to get out-of-the-way once one of numerous, if transitory, intraday and intraweek rally attempts are mounted. More are coming; with (if we're right) more staying power than what we've experienced thus far recently.

Bits & Bytes . . discusses behavior of several stocks (this does not imply a buy, sell

In summary. . . an expected erratic week in which initial downside follow-through was expected, but that we suspected culminated in yet another broad decline that would turn (in a number of sectors). There's no particular specific corollary with prior events, as previously observed; so we don't mostly argue ultimate lows or 'bottom picking', per se. There's no argument some stocks may be relatively high versus this year's business results; but any experienced analyst knows that for a host of volatile (and growth) stocks, PE's will be high both at the tops and the bottom too (at variance to the Dow's action); though of course you can have a series of lower-lows thus far.

This makes pattern analysis very tough based on prior experiences; though technical work still suggests some sort of a rapid turn is in the offing (probably the nuances for this were in place earlier this week; squelched a bit by the China distraction, etc.). We do not dispute that if the earnings turnarounds are much later (and thus an economic situation much more deflationary, with systemic risk), then while we're still lining-up for more of an enduring turnaround quite soon now, that effort could be transitory for a longer-term standpoint; so that's something to evaluate down the pike a bit. And for over a year we warned about accounting sloppiness which helped set some of this up; not to mention excessive forecasts from earnings estimators for over two years. If there's one corollary there, it might be (with the reg FD restrictions) that they now err on the cautious side, after being so absurdly optimistic beyond reason in past years.

McClellan Oscillator data turned up last week and then it reversed again recently. However these numbers, which are around -80 for the NYSE and about NASDAQ –33 or so (same as yesterday), can be what is actually a secondary-test of the lows of a couple weeks ago, though few are considering that possibility. (Continuation to the downside will look just the same, but in such an oversold condition the bullish option has to be considered.) The TRIN (or Arms) as noted the other day is in territory that also typically follows key lows, while VIX (Volatility Index) again suggests a trading reversal in the not-to-distant future (probably the nuances of which are underway for a few days, though unrecognized), while sustainability as usual will be the key issue.

We'll continue emphasizing the short-term, while remaining open-minded to all of this being an exhaustion of the downside (barring more instant shocks); with allowances for more warnings, but believing much of that is probably behind. Again seeing erratic convulsions early-on for this week, then increased chances of turnaround, we caught a lot of the moves (though wish it was not necessary to play the downside as much; of course in consideration of investor sentiments about their holdings; but that's what our work required). This brewing transition was our call; there is little change in that; which is to say we still view this as a potential big-cap secondary test of the prior low, but do realize warnings may surprise markets a bit from a bigger stock or two. So at this point we're posturing for a reversal of sorts on Thursday, low probabilities for any historical comparisons; though our technical work continues to argue for this. As of around 8 p.m. EDT Wednesday S&P premium's around 1885, without news we know of, other than discussed. That has futures around 1122.10 at this hour; that's actually up about half a ton (or about 10 full points) from the regular Chicago 1112.50 close. It was our pleasure to call for a final hour comeback on the (900.933.GENE) hotline; at the same time standing aside overnight, pending the suggested action in the a.m.