Oct 30
Small Caps Leading the Way Into the Abyss
Posted by Kristjan Velbri | Posted in Markets | Posted on 30-10-2009
Overheard on Wall Street:
Trader: These were some pretty decent GDP numbers today, don’t you think?
Mr. Market: I’ll let you have that. But let me ask you something: since when have the markets moved in the same direction that the economy has?
Trader: What do you mean?
Mr. Market: There’s no way you will be able to hold on to those gains.
Trader: What? But the trend is still up, isn’t it?
Mr. Market [hangs up]
Trader: Hello?
The market really has spoken. Yesterday I posted some pretty grim charts. The GDP release was pretty strong but let’s not forget that the direction of the market and the economy is not necessarily the same. Added to that is the fact that the GDP was strong only due to government spending and stimulus programs and the base for comparison, the 3rd Q of 2008 was relatively weak. Officially, the US economy has been pushed away from the brink, but the brink is still close and the economy is on a tilted base meaning that it could fall close to the brink again.
Most of my commentary is on the charts but I want to make it clear that I don’t see an immediate crash coming. The indicators on the daily Russell 2000 chart are what you would define as ‘oversold’, but the indicators on the weekly chart are ‘overbought’. Hence I see a possible short term upside movement for the market but I remain pessimistic. The rest of my commentary should be on the charts. Please note that some chart are logarithmic, some are non-logarithmic.
