Tuesday, October 20, 2009

Desperately Looking For Normal

This exemplifies what we deem as “desperately looking for normal”-where the markets are expected to behave according to a scenario molded by traditional metrics as construed by mainstream analysts.

In cases where markets misbehaves or veers from the norm, then all one has to do is to extend the premise of the argument, regardless of its validity, until perhaps it occurs…one day (even for the wrong reasons).


The following is a chart of the day from Bloomberg takes a perspective from seasonality patterns.


According to Bloomberg,

``Predictions that U.S. stocks would decline in September and October weren’t wrong, just early, says Mary Ann Bartels, an analyst at Bank of America Corp.

``The CHART OF THE DAY shows how the Standard & Poor’s 500 Index’s surge from its 12-year low on March 9 compares with rebounds from troughs in March 1938 and October 1974. Bartels cited those two periods as precedents in a report today.

``Using the earlier rallies as a guide suggests the “seasonal weakness” that stocks often suffer in September and October will occur in November, December and January instead, she wrote.

``The 1930s advance appears in the chart’s top panel and the 1970s surge is in the bottom panel. In both cases, the S&P 500 fell more than 10 percent from its peak after the rally ended, surpassing a commonly used threshold for a stock correction.

``Bartels, who relies on chart patterns to determine the market’s prospects, wrote that a correction after the current recovery would lay the groundwork for further gains next year. She sees the S&P 500 climbing as high as 1,325, a gain of 22 percent from the benchmark’s close of 1,087.68 last week.

``September has been the worst month for U.S. stocks on average since 1950, according to the Stock Trader’s Almanac. October 1987 and last October produced the biggest-ever losses for the benchmark Russell 1000 and Russell 2000 indexes, dating back 30 years, the almanac said.

We sympathize with such view knowing that markets don’t move in a straight line. This means that eventually markets will correct but the timing is the ultimate question. It could happen tomorrow, in a week, in a month, or so on.

As a saying goes even a broken clock is right twice a day.


Nevertheless, for us, as long as policymakers persist with its manipulative mode, markets may continue to "surprise" on the upside.

Perhaps, until money or liquidity in the system may not be sufficient to sustain present levels or until policymakers reverse present actions...and that's where "normal will probably look normal".

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