Summary
There is a pathology of sorts that accompanies mania market climates. The one currently accompanying the "be happy, don't worry" climate in the stock market could not have been more in evidence than it was yesterday.
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I experienced quite a coincidence yesterday -- actually, "juxtaposition" is more accurate -- one that so beautifully sums up why the stock market remains a very dangerous place.
Don't get me wrong, however. I continue currently to work on a scenario suggesting the market probably made a major top during the first week of August. And one of the pillars supporting this thesis in my own mind is that very few people believe this is what occurred! But back to yesterday.
Not long after the stock market closed, I heard a pundit on one of the leading "media" venues in the regular Wall Street propaganda loop explaining yesterday's market strength. Wall Street was "relieved" that the damage from Hurricane Katrina was a good deal less than expected. But less than who expected, and when?
Not long ago, Katrina was a disorganized system nearing the Bahamas. Forecasters actually had minimized the chance it would develop into much of a tropical storm, no less one of history's great hurricanes. A rather weak Hurricane Katrina passed across South Florida, reemerging in the Gulf of Mexico. But it was not until this past Sunday that a critical item became manifest, to wit: At "Category Five" level, Katrina was a monster of a storm, capable of extraordinary carnage.
Thus, Wall Street had little time, at least working-hour time, to ponder the consequences or to create aftermath damage scenarios. Nevertheless, here were the Street bulls yesterday, via one of their leading media propaganda surrogates, opining relief that Katrina's damage was a good deal less than expected. I ask again, though, less than who expected, and when? (Pardon me, please, while I vomit!)
But yesterday's bizarre juxtaposition was this. After listening to Wall Street's expression of relief, I had occasion to change the radio station and hear a live press conference being conducted by Louisiana Governor Kathleen Blanco.
Ms. Blanco was far more circumspect than Wall Street was, since lingering storm conditions had prevented aircraft from getting up to survey the situation, and the National Guard and the Louisiana State Police had not yet been able to give the state's chief executive officer much in the way of specific reconnaissance. So, Louisiana's governor didn't know yet the extent of the damage, although she opined that it was very severe. Wall Street knew, though. Thus, the governor, instead of wasting time with her press conference, should have been on the phone, consulting with people in New York City, some of whom probably would be hard pressed to locate Louisiana on a map of the United States!
A little while later, Mississippi Governor Haley Barbour was, also in real time, discussing his state's situation. And his message was virtually identical to Governor Blanco's -- too early to know anything very specific, other than the situation in much of the coastal area of his state appeared dire.
Today, at least as of when I am writing this, Wall Street appears to be having some second thoughts about its initial, instant bullish assessment. As well it should, as the extent of the extraordinary carnage in Katrina's wake is becoming better appreciated. (The DJIA is presently down about 70 points.)
A piece I wrote and published last week contained the following:
"I believe the table [below] shows an interesting phenomenon at work, one that helps illustrate the recent loss of momentum.
"...As the numbers...indicate, using the DJIA as the market proxy, there have been a series of one-day trading events in which that one day was inordinate in its influence on the Dow's performance for each the respective weeks ended 7/29 through 8/19, inclusive [now updated to include last week and yesterday]. Put another way, the strong days in each of those weeks turned out to be random in that there was no follow-through.
"A word coming readily to mind given this pattern is 'distribution.' In fact, my overall analysis of many of the technical formations of the last several months would place very heavy emphasis on distribution patterns. If so, major distribution phases almost always segue into something rather unpleasant."
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DOW JONES INDUSTRIAL AVERAGE
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DJIA Largest + Day During Week
Change -------------------------
Week for Day/
Ended Week Date Points Change
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09/02 NA Mo 08/29 +65.76 +0.6%
08/26 -1.5% Th 08/25 +15.76 +0.2%
08/19 -0.4% We 08/17 +37.26 +0.4%
08/12 +0.4% Th 08/11 +91.48 +0.9%
08/05 -0.8% Tu 08/02 +60.59 +0.6%
07/29 -0.1% Th 07/28 +68.46 +0.6%
07/22 +1.0% Tu 07/19 +71.57 +0.7%
07/15 +1.8% Mo 07/11 +70.58 +0.7%
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