The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

19 September 2008

Really, was that so bad?

Over the course of the past week, week and a half, the markets have shot off a lot of fireworks; definitely, an impressive sight. This week alone, the market (DOW Industrials) was -500, +150, -500, and +500 -- for a whopping net loss of ~350 points, or ~3%. Despite the sound and the fury, the market likely will end the week just about where it began, if opening price indications hold and build into the close.

You see, yesterday proves to be a major reversal day. Not a "key reversal day," but crucial nonetheless. Yesterday's action occurred at the precise chart point (price, volume, and trend action) necessary, and when.

And so today's price indications point to an explosive upside on the opening. Upside price gaps predominate, and if you did not purchase when the buying was good, you will now pay the price... A much higher price, as now bullish price action becomes more obvious than the subtle clues and positive divergences.

Yes, 'tis awfully bold (of me) to have such certitude in the face of today's headlines, scary (financial) world and all, and on the flimsy evidence of one reversal day and an upside indication for the opening of the second (i.e., subsequent) day. Could this sudden bullish activity still fail? Sure, but the bad news is out, and professional investors now assume the parallax view, that amid the seeming chaos lies opportunity.
• In 1979, Mt St Helens exploded, and chaos reigned. Until a few investors realized that nature did all the work for the logging companies: uprooted 1000s of trees, flung them west, stripped them of their bark and branches, and dropped them in nearby waters (Puget Sound, etc). Suddenly they realized that Weyerhauser/WY and other loggers had just saved a fortune in labor and materials costs, and bid higher the share prices in frantic trading.
• In 1991, Mt Pinatubo exploded, and chaos reigned. Until a few investors understood that the volcanic ash would cast a pall (sorry!) over crop futures for many years, so they shrewdly purchased potato futures to hedge against the the Soviet Union's massive need. And
• the bear market of 2007/2008, stocks were sold indiscriminately, until professional traders adapted the parallax view: Forget about AIG, and buy Chubb/CB; forget about Lehman/LEH, and buy Wells Fargo/WFC. The scramble to buy caused the stocks to rise explosively, to all time highs. Please note the explosive upside gap indications in my Core Opportunities; so much for the dire predictions of $300 for Google/GOOG, which now sports a profoundly bullish price pattern to go with its positive divergences.

The market has yet to surmount many remaining hurdles that would change its short and intermediate term direction to up -- or make it more obvious to more market participants -- but the preponderance of the evidence now indicates the uncertain future of a market that climbs a wall of worry will prove to be. Few people, I know, have the needed perspective to see this unfold in real time, but the signs are there for all to see.

Full Disclosure: Long Google/GOOG, and happy.
-- David M Gordon / The Deipnosophist


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