Wednesday, November 15, 2006

No Man's Land

I have an interesting graph to show you. Here it is:


Amazing market, isn't it? Nothing but strength. What's salient about this graph is that it's an image of the $NDX, and the rightmost price bar is the peak in March of 2000. As you can see, there's hardly any warning about what's going to happen. But this is what a market looks like before it collapses.

What can you draw from this? Probably not much. Obviously rises proceed collapses. And just because a market goes up a lot doesn't mean it's going to go down a lot. What I find somewhat chilling about this graph is how little warning anyone was given, even with the Dow selling off the last two months of this graph. Food for thought.

One of my favorite charts is the long-term view of the $SPX. I've marked up this chart with lines galore, but you get the idea. As you can see, we remain at the tippy-tippy-top of the ascending channel.


A closer view shows more clearly this top (oh, and for those that don't know, just click on any image to see a much bigger chart). Also remarkable is the trendline I've drawn on the RSI which has been cleanly broken.


The Dow Utilities, which go largely ignored in most commentaries, has been a non-participant in the recent rally. Worth noting.


I mentioned GOOG yesterday as a very attractive chart. It is, but just like SHLD, it hasn't really exploded off its pattern yet. I find it interesting today that the "$500 for the sake of $500" crowd couldn't manage to push the stock above this lofty level, and the chart was left in a shooting star pattern for the day.


For the moment, I'm glad I turned the comments section back on to anonymous posters. It's rocking and rolling again. We'll see if people keep the discourse civil this time.

62 comments:

Anonymous said...

still holding on to my shorts after getting beaten up

my account now in -ve territory for the year after having a hefty 85% ($27500) profit in june. now down by $2500

the only word I can think of

inexorable \in-EK-sur-uh-bul; in-EKS-ruh-bul\, adjective:
Not to be persuaded or moved by entreaty or prayer; firm; determined; unyielding; unchangeable; inflexible; relentless.

zstock7.com said...

X-mas started before Halloween …
therefore X-mas rally started in July…

Finally…Ryland and Alcan***
up to where****
I can short’em, and short’em, and short’em***
some more….***

z-stock

Anonymous said...

better buy the dips. it seems to work well in this market

Anonymous said...

Mr Kinght must be another anti american liberal - we have a strong economy, strong country, and the best place to live - stop hoping for bad things on this great country. I bet ur a big fan of Nancy Pelosi

Anonymous said...

Market is up due to liquity injections from the fed. They do not want to the economy go in the tank due to the housing bust. Its the only thing that can explain this straight up market. Just like 1999 all over again.

Anonymous said...

The VIX has only been lower two previous times in it's history. The time for a major pull back or fib retracement could be near. Almost everyone (Traders) I've spoken with have turned bullish. That's scary. It's OK to go long. There is money to be made.....long and short. But the thing that some uninformed people don't realize is that markets in this extreme over-extended overbought level are not healthy.

Tim....thanks for all the posts and the blog. There are times that you just can't pick a top. I know...I've tried to pick 7 or 8 in just the last couple of months. I've missed this whole bull run. But what is interesting is that so many charts are still far away from their highs in May before the big drop. To get in on the bull run you had to be selective in your picks.

The markets have got to come down. And for them to come down would be healthy. It's not wishing anything bad on the country or economy. It's just applying some sense to something that has not shown any sense.....since about mid August.
So for everyone who thinks being a BEAR is bad...It actually is good to have Bears in the market. Think of the market as yourself. Breathe in and just keep trying to breathe in. You can't do it. At some point you have to exhale. So it is with the market. It goes up and it goes down. How else would you be able to buy and sell. There are buyers and there are sellers.

Tim and everyone else....I'm sorry if this post offends anyone. It just seems that traders that lean to the bearish side get the short (no pun intended) end of the stick. Hopefully it is well received.

Thanks.........DJ

Anonymous said...

i agree with 2:58pm, I think that since the housing market is sinking the only way to keep this economy from tanking is to move the markets higher so people actually have a place to make a minimum of 5-10% a year.

Remember when we were dropping hard and many were calling for the markets to drop below 10k. It seems like the same thing on the bullish side with many calling for 13,000 and even 14,000 by early 2007. I feel like going long myself but feel if i do I will regret it because thats when the markets will start dropping.

Trader 2006.

Anonymous said...

WTF

HANDHELD ENTERTAINMT (NasdaqCM:ZVUE) Delayed quote data

After Hours: 6.89 0.79 (12.95%)

Last Trade: 6.1000
Trade Time: 3:59PM ET
Change: 4.5900 (303.97%)
Prev Close: 1.51
Open: 1.67
Bid: 6.8500 x 300
Ask: 6.9000 x 1600
1y Target Est: N/A

Day's Range: 1.4900 - 6.2400
52wk Range: 1.00 - 1.51
Volume: 9,424,304
Avg Vol (3m): 21,350
Market Cap: 62.43M
P/E (ttm): N/A
EPS (ttm): -1.78
Div & Yield: N/A (N/A)



Trader 2006.

Anonymous said...

what i just posted im seeing happen in many stocks, feels like 1999 all over again, stocks gaining 100-500% on a daily basis, especially the ones trading below 5 bucks.


Trader 2006.

Anonymous said...

anun do you see any pullback before 1500....i mean a straight run to 1500 without at least a 3-5% pullback????

i was looking for a drop on the s&p to at least 1350. I think a pullback would be healthy for a the next run...

tomorrow CPI
DELL and HPQ earnings, ALL market movers....

CPI comes in hot and this market gets a nice needed selloff if not its headed up another 50+ points on the dow and another 10+ on the Nasdaq..


Trader 2006

Anonymous said...

wow COH at 42, i wanted to go long in the low 30's but at the time the gloom and doom prevented me, everyone hated the thing.... now the damn stock is at 42++ WTF......truly amazing......


Trader 2006.

Anonymous said...

First off, Tim, thanks for turning the anonymous poster feature back on. I definitely didn't want to start signing up with Google just to post here.


Now, as to the markets, I said it before and I'll say it one more time:

The Big Boys have NOPLACE ELSE to put their money right now! Bonds? Nope. Real estate? Yeah right. Commodities? Many of the big players don't trade commodities. Fixed income? No way, as long as they can float equity markets with false liquidity.

So that just leaves stocks. And if they keep pumping money in, which way do you think the markets will keep going?

I don't see any end in sight. No bear market will happen until they drain that liquidity back out of the system, which could very well be NEVER.

This is pathetic.

Granted, investors can always go foreign with their money, and quite frankly I'm not sure why they don't. But since this entire rise in the market has been manufactured and manipulated in its size and intensity, I wouldn't be surprised if the "Powers That Be" have put restrictions on where the freshly-printed monies can be invested (i.e., they must be invested domestically).

-TonyB

Anonymous said...

Do some of you folks on this site comprehend what you have missed over the last 6 months ?1400 pts on the DOW and 20 to 50 % on any number of stocks,i.e.-WYNN,MSFT,GM ,etc. Any of us can be wrong for a while, but that requires accepting that fact and changing strategies well before being stubborn for six months or more.There is a certain point where you don't get to be right no matter what happens.Hoping,Wishing ,hating momentum that does'nt make sense to you and staying in denial(possibly for years)have never been winning strategies in the stock market.

Anonymous said...

yee-haw let the party roll now ......
all the anonymous posters are still here ......
this post could hit more than 100 comments .....
back to the old days .....

Andrew Wright said...

"Do some of you folks on this site comprehend what you have missed over the last 6 months ?1400 pts on the DOW and 20 to 50 % on any number of stocks,i.e.-WYNN,MSFT,GM ,etc."

Thanks for the heads up. Where were you two months ago? Yes I missed out on the majority of the move.... should I be asking where were you when the market was falling???? No.

If everyone went long, then the market wouldn't be a market. and to say jump in right now after that run....no thanks.

I bought puts on ESRX at the close for a quick trade it is up 11 straight points in 3 days.

Am I trying to call a top???NOPE. I'm being selective of what I get involved in. Despite the up day today i'm noticing shooting stars and negatives all over the place for having rallied as much as we did in the past weeks. Goog, Wynn, MA...shooting stars....

Akam is on its 50 day MA. Odd I thought the markets were flying today!!!!

Anonymous said...

This market is not going to crack until the last bear is broke or retired.
Since I capitulated today I know we are near the end.
Speaking of things that don't make sense, wtf is up with the defense companies. You would think we are just getting ready to go INTO Iraq.
I guess the dems must be good for defense spending!
My biggest long position, ADM, has been down lately (even though all the ethanol plays were up today). take a look at the price of agricultural commodities (corn, wheat, soybeans) lately, and explain to me why they won't have the biggest blowout quarter in their history.
Don't you love options week?

Anonymous said...

Isn't this move up just a mirror image of the may to july august. that drop just kept going down day after day with no opportunities to get out on bounces. this market just keeps going with no chance to get out on dips.

i just think to much money got positioned short around the beginning of september looking for a 4 year cycle low or october crash. it has kept a bid under the market.

so here we are back to where we were in may. don't think much has changed economically since then. if anything the data is softer.

that said, i have no idea where we go from here

Anonymous said...

one other thing . . . tim you are killing me. your charts sure look logical, but damn have they been wrong for a long time now.

Anonymous said...

you wussy,

Anonymous said...

wtf is with all the wussy,s in here ?

Anonymous said...

Tim,

WTF? Did you fall off the fuggin' wagon after ONE DAY?!?!

Let me ask you guys again: HOW MUCH HIGHER DO WE HAVE TO GO BEFORE YOU REALIZE WE'RE GOING UP?

Duh...we're up 500 POINTS since we took out the old All-Time High of djia-11,750.

Anonymous said...

Tim I would have to disagree with you that there was no warning on qqqq back in 2000. The warning was the double top. That was the warning in all 3 indices back then.

As for google don't get your hopes up the 500 will be exceeded the next run. One day pull back and then 500 plus.

Costas1966

Anonymous said...

I am up by a million on my dia calls. Thanks bears for lining my pockets with cashh.

Anonymous said...

This "rally" is 100% based on Fed liquidity being pumped into the market at an astonishing rate. There is no mystery behind it. And it's also no big secret, either.

That being said, there is absolutely NO WAY IN HELL that any single one of you know-it-all-wannabes saw this rally coming starting back in July. I'm sorry, but you could have GUESSED that a rally was coming, but all of the objective evidence would have been against you: historic 4-year cycle coming due, economic downturn, slowing GDP growth, housing bubble crashing, etc. We all know what *SHOULD* have happened, but the markets just didn't cooperate.

You can always look back and say "I told you so" if you were bullish, but without any REAL JUSTIFICATION for your sentiment, then you were just plain guessing, just like we all were.

Using historical, economic, and fundamental FACTS to make sound judgements in making investment/trading decisions is not a "crazy idea." But an outright GUESS that the markets would have started a 15% non-stop, balls-out rally back in July is just what it is... a guess.

If any one of you out there can honestly tell me that you KNEW the Fed would fire up the printing presses and pump ungodly amounts of liquidity into the markets to keep them afloat to prevent a recession, then you're either lying through your teeth or you know Bernanke on an intimate level.

-TonyB

Anonymous said...

Tim thanks for posting on your blog. I love your site! I have learned so much

Anonymous said...

like Steve Erwin, quit while you're ahead!

Anonymous said...

the NAZ has clocked 25% in 4 mos. The last time it did this back in '04, the move down took back almost 70% of the gains.

- Frank da Tank

Anonymous said...

trader ... onewaystox is ALWAYS bullish!

I guess his name didn't give it away! You're a bright one!

Anonymous said...

pb: To answer your question about why this isn't showing up on the inflation front: Because PMs (especially gold) are being held down by the big players.

Also, there is no PUBLIC information regarding TRUE inflation, therefore the average Joe investor (and I would imagine a good portion of the over-worked investment houses) are overlooking the true inflation measures. Besides, when you can make 3-4% per day on pumped-up equities, why would you worry about an 8% Y-o-Y rise in inflation? If you're a big player, you don't worry about stuff like that.

However, with gold up 30+% Y-o-Y for the past 3 years, it's gotta tell you something.

Another reason for the disconnect is that the "traditional" measures of inflation, such as oil and gas prices, have come down off of their highs this year, giving the perception that everything is all right. That's the real trick: hide the M3 numbers and drop the price of oil and gasoline. That way, John Q. Public is made to think that inflation is not a problem. And the investment houses (who are on the receiving end of the massive liquidity injections) don't care about REAL inflation, because they're making more money by forcing the markets up and up and up.

To put it another way, the big players only care about where they can make the most money. And right now, it's not by playing the inflation hedge. It's by playing with the "funny money" that they're given by the Fed. Once that runs out, then they'll run for cover. But at this point, there's no end in sight, so equities just keep going up and up and up...

-TonyB

chronictown said...

Tony, its great to see you back around here. Re:KRY up big on big volume,might be worth a look.If gold can close above 620 for the rest of the week, we may be on the way to 640 and beyond.Long physical gold,USGL,KRY.former bear turned gold bug. Whats a girl ta do?

Anonymous said...

pb: Oh, and yes, you might think that the Fed would increase rates to curb inflation. But they'll only do that if THEIR measures of inflation don't agree with THEIR measures of the economy. Which basically means they do whatever they want, whenever they want.

The TRUE inflation readings are only very loosely related to the numbers that they release to the public. It has been estimated that true inflation is around 8 percent, while the numbers that they quote to the public is less than 3 percent. There is a huge disconnect, and now that they're not reporting the M3 figures (conveniently discontinued in February of 2006 after 50 YEARS of tracking), we will never actually know the real inflation figures.

Anyways, the deal with the Fed is that they're all about the hawkish talk regarding inflation, but when it comes to actions, they're very dovish.

Oddly enough, my gut instinct tells me that after this huge rise in the markets, the Fed will decide to RAISE rates in January or February, thus crashing the markets, but ONLY AFTER all the big players liquidate their stocks to the uninformed retail investors over the course of the next few months.

Watch very carefully for the institutional turnover (hidden distribution on heavy volume with no price movement) in the major index stocks in the next few months. The stock market is very much an "us versus them" environment. They like to make you think that if you don't buy at the bottom, you're stupid, and if you buy at the top, you're stupid. But what they fail to tell you is that *THEY* dictate the tops and bottoms. The key is to try to identify exactly WHAT they're doing.

And so far, the bears have severely underestimated Ben Bernanke's ability to turn on the liquidity faucets when things looked rough. I suspect that within the next quarter, the bulls will underestimate his ability to turn them off.

-TonyB

Anonymous said...

Chronic:

Even though gold hit a recent high of $636, the real pivot point is at $628.50. If gold can close above $628, then it should hit $646 again, possibly on its way to $660.

I'm not even going to start guessing where gold is headed, as it is being terribly manipulated. I initially thought it might be a good long-term hedge, but I'm starting to have my doubts, considering its voltility this year. The big players could force it down to the low to mid $500s without gold going bearish.

I like to watch it, but the recent technical moves have been turning me off to gold as a long term investment. The markets haven't been behaving "normally" in the last 6 months or so, so I'm not really sure where to make the best use of my money. I suspect that gold just isn't it right now.

Of course, a strong move above $628.50 could change my mind.

-TonyB

Leisa♠ said...

Toshi accused of being a liberal!? Lord he's already waiting for the atheist magazine covers...that anonymous poster's comment was too funny.

It is nice to see KRY performing. It tends to be erratic. I'm up 20% on that holding. It is very erratic, though. I did buy some ERF on the debacle. It went up 8% before dropping a second time. Cramer talked about these Canadian Trusts just last night. ERF popped to $43 last night. They'll all pop this morning. I'm glad I developed my thesis before he did. I also think some of the drop in ERF was due to ex dividend which their chart reflects. So I hung on and did not get shaken out.

TonyB appreciated seeing your macro comments. I don't understand how PPI declining, retail sales declining and inventories rising portend anything good for corporate financials. I imagine with the comments yesterday the dollar might strengthen a bit.

Anonymous said...

Its a hedge fund world. Only the mad drive for performance could arouse gold from a 20 year slumber or run oil to unimaginable highs. Once the crowd milked all things metal and petro, it was time to move to another asset class. Now its all things equity and no hedgie can be left behind. Technicians and fundamentalists alike are left to wonder how long this collective insanity can persist. This market run is now at the stage where its more an absence of sellers keeping things afloat. Everyone needs to be in. The rush for the exits will be something to behold but until then, the short shredding will continue.

John G. Black said...

Just to keep some perspective:

12/31/99 S&P 500 1469
P/E 32
Earn 45.39
10 Year 6.67%

10/14/2006
S&P 500 1393
P/E 18
Earn 78.72
10 Year 4.62%

There is so much value in stocks compared to bonds, any comparison is specious. The S&P would have to go to 2,000 just to keep up with bonds!!

bsi87 said...

ZZZZZZZZZZ

Same ole' arguments.

Looks like bonds are peaking so I put on a short position. Sorry Bond John, bonds start dropping, equities will too.

re:gold. Compared to bonds and USD, it's overpriced. Looks like a frenzy based on M&A. My best guess is gold to 570-580, THEN it'll take off again and break to new highs. Too many watching and hoping. I'm short.

re:GOOG. Put on a short order this morning. They're busy throwing money at companies, hoping it'll stick. Note the reversal yesterday on higher than average volume. It could drop a quick 100 pts and still be a LT buy but compared to risk free alternatives, it's at the top of the range. Also note that there have been 3 highs YTD plus this one. Each high volume has progressively declined.

On the other hand, there have been some nice trades when different stocks drop 20% on 10X volume, clears out the sellers and weak longs and opens them for a pop.

Doesn't pay to be a permabull or a permabear.

Anonymous said...

cpi lowest since FEB, guess were going higher again, is this like the 101 day nasdaq is up in a row......

DOW 16 new highs since OCT 1st.


Trader 2006.

Anonymous said...

surprise surprise

TOL will be pegged to 30 for this options expiration. Isn't there a way to fight these mother fu**ing wall street crooks

Anonymous said...

bond John ... your insights would be valid if bonds weren't so damn over-valued. You're using a faulty compass to navigate, but it looks like you are not alone, as many have been buying stocks based on this mis-placed math.

Anonymous said...

7:40am I noticed the same thing....nearing 30 yet the ceo says he sees no rebound in housing anytime soon, i dont comprehend that at all. Homebuilders all coming back up again..XHB above 35.....

Trader 2006

Anonymous said...

I cannot belive this market.

I shorted Rimm at 80, 100, 110, 120 and 128 and now 134

I am insane!!!!!!

Anonymous said...

Anon, what else are you shorting? may be I will think about buying those :-)

Just sit on the side line or buy some shares, this is no time to short ANY stock

Anonymous said...

day after day after day i question this market, how it can sustain these moves with little or no pullback is beyond anything ill ever understand.

Every bear in here knows when the market was selling off hard in June and July we did get those oversold rallies, how come we are not getting overbought selloffs....seems like the bulls get everything they want. I know good things like this eventually come to an end, but when of course is anyones guess.
And to think I was bullish on this market under 11k back in July haha...

Trader 2006.

Anonymous said...

tonyb, one thing to note that this liquidity ramp has been driven by the treasury repos, NOT the fed, paulson has taken over the driver's seat from ben and relegated him to the playskool wheel in the back seat. as if you didn't know already, the winner has and will always be the big boys on wall st., mainly gs, ms, mer

Anonymous said...

another damn ralllllly....WTFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF



Trader 2006.

Anonymous said...

IS anyone here questioning the buyouts by these private equity FIRMS.....DOES ANYONE see what is going on....


in the last month there have been over 10 companies back private......does anyone understand what is happening.....


and please tell me today is a blowoff top, these markets have been straight up for nearly the last 2 weeks........

Anonymous said...

THIS MARKET IS SERIOUSLY PISSING ME OFF!! EVERY GODDAM LITTLE PULLBACK EVAPORATES!!!

I REALLY DO SINCERELY HOPE TAHT THIS MARKET CRASHES IN STAYS BELOW DOW 1,000 FOR THE NEXT 10 YEARS!

- Frank the Tank

Anonymous said...

blow up top! melt up! insane! whatever!

dead bear

Anonymous said...

yes, that's DOW 1,000!!!

Fukc you bulls!!!!

Anonymous said...

frank im with you 100000000000% on that


this is FU$IKNG un REAL UNREALLLLLLLLLLLLLLLLLLLLLLLLL

i would love to see a triple digit loss by 4pm

TRADER 2006.

Anonymous said...

Please tell me this is the blow off top....

nasdaq up 9

DOW UP 65...

12,319

DISGUSTING

TRADER 2006.

Anonymous said...

hey everyone!

I'm organizing a hunting trip to WALL St. Gonna shoot some bulls!

Let's meet infront of NYSE at 4:00pm sharp!

downosedive said...

Trader2006
I wish I could tell you it was, geezzz, Im pummled. I took out a heavy short and in just 2 days Im pounded totally pounded. What the hell to do? I just know if i close them the market will then fall. If I go long the market will fall. If I hold these short positions the market will carry on rising. Whatever I f****** do the market ALWAYS does the opposite. I just dispair. But surely surely this just cant go and on? A glorious soft landing with zero inflation and 1% interest rates has not only been factored in, but way exceeded.......?????? LOL like a madman

Andrew Wright said...

The pain seems the strongest right now....

Bought more ESRX puts....overbought and failed at gap resistance.

If the market goes up alittle more...I'm loading the boat with SPY puts.. You won't get an opportunity like this in your lifetime again. At some point you need to realize that something isn't making sense, and that the risks are not to the upside any longer.. they areto the downside.

Up 7/8 days...hahah this is a bad joke. Let them run it through the roof.....I'm not calling a top but there are an awful lot of weak stocks that need a break. You don't keep sprinting without breathing....

Andrew Wright said...

http://www.thestreet.com/_tscfoc/markets/activetraderupdate/10322652.html

Read this

Anonymous said...

Im in on the hunting trip. Can we do it before the closing bell so I can go home(at least one day) happy. Since when is it illegal for the market to be red at the end of the day. the GOP must had passed that law before they were thrown out....

downosedive said...

Trader2006 - and anothing, NEVER feel you are alone. We are all with you and in this those active bears. i lost in excess of $12000 last quarter gambling on the DJA. I want my money back and will fight to get it back. Just dont give up mate. By the way - is that you at the top of this section? You had $27500 in June. If it is Christ man. The only thing I can say is at least your capital hasnt been lost like mine has. I know thats probably no help at all? There isnt anything else I can add at present. Just stay with us

Anonymous said...

down your not alone....same thing happens with me, i go long the market drops, i go short and im covering like you days later....

I was long QID at 67.000000000000000000000000000


today 91.0000000000000000000000000000000


I sold out of QID for a minor profit, went long again around 70-72 and sold for a minor profit then went long QID and since then have averaged down 3 times losing everytime.....im in a no win situation..

Anonymous said...

look at JNPR, bastards are fighting to fix to $20

Wish I has a billion dollars, I would screw these mother fsckers

Anonymous said...

pb i was looking to go long around dow 11600-11700 but that was when the dow was trading at 12,000....

its also one of those things that if the DOW does go to 11900 you think hey now is a great time to go long, you go long and the next thing you know its trading at 11,500.

8 out of 9 days is pretty amazing if you ask me....

i really thought 2 weeks ago when we briefly dipped below 12,000 that the bears were going to win, but it didnt work.

HPQ earnings after the bell nothing too great, stock is unchanged, however sbux is down..........I think i may have to buy some SBUX because it only goes up after it falls like this....35 might sound good...


trader 2006

Anonymous said...

My first post here, and like many I have been looking for the bulls last gasp as any number of issues (debt, valuations etc...) bring the market back to earth. But perhaps I am looking at this all wrong. After all, the almighty Dollar is fundamentally worth.....nothing. The powers that be can (and have) been printing them non stop for quite some time now, and all the debt markets do is yawn. So perhaps a better question is " how much are these companys worth....in monopoly money?" How many bright orange $500 bills from milton bradley would you trade for a share of GE?
Until the debt market calls the central bank's bluff, there really is no reason for the market to fall.

Anonymous said...

Well folks the time has come to say ENOUGH! As you may remember we called the rally to the DAY and now we are sticking our necks out and predicting a decline starting today.
We are doing this with no economic news on tap and no other catalyst that we can think of to set this decline off. Then why oh why are we ruining the fun?

Well It's The Productivity Stupid! In the 1990's big gains in corporate efficiency brought on by high tech spending & global trade was THE key factor in holding down inflation. You don't hear much about worker productivity lately from the Fed whereas Greenspan used to talk about it all the time. Why no mention from Big Ben? Well because the news is not very good.
In 2003 we reached a PEAK rate of 4% productivity growth As of the third quarter we were down to 1.9%. This takes a little time to work it's way through the economy but it's the slowest rate in 9 years! The newest reports we have read suggest a rate of 1.3% and that rate WILL be revised even lower early next year when the Labor Dept. incorporates recent hours worked info from 2005 and 2006 (a lot of overtime- not new hires). Productivity slow down means the economy has less room to grow without generating inflation ,this is showing up in the labor market that continues to TIGHTEN even as economic growth SLOWS. The result labor costs are spiking. And just at a time when most companies productivity gains are to weak to offset a pay raise to the workforce. October hourly pay was up a whopping 4% from the year before.

The Fed then is in a bind. As economic activity reaccelerates as we think it will after the midyear cycle slowdown the labor markets will tighten further-- Quite simply running at absolute employment is BAD for inflation. So whereas commodity-based inflation and oil has retreated and that has caused inflation to appear to have peaked - the end result may be quite a bit more inflation than the Fed can be comfortable with. Big Ben will have to continue his rate raising cycle and that will put us in a risk of recession in mid to late 2007.

Why correction now then? Well things don't go straight up. The VIX is popping under 11 complacency is everywhere-- oil is hovering at $60 not $50 despite the warm weather on the East coast. It's really just a GUT feeling one gets from studying the markets for 20 years but the Bears are getting rolled day after day, liquidity is so low ONE $500 million dollar futures buy the other day set off a stampede on the upside in the S&P 500. I have never seen that before. The buybacks by corporations have helped this rally and corporate earnings so much! However, the recent round of mega IPO's has us worried that some of the excess liquidity is now being mopped up.

The Fed is expecting an economic slowdown sufficient enough to generate enough slack in the labor market to allow price pressure to ease.
Stoned Investing is not so sure. And even if we do slow down inventories are so high right now , 7.5% higher than last year-- that won't be good either.

So the call is for two weeks of pain ~ maybe 5%....
but of course a lot more in the one's that have gone up the most.

The Stonedinvestor.