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Mood Shift, Not News, Caused Stocks to Fall

By Rick Ackerman Posted on October 2, 2009, 3:11 am EDT Last Updated October 2, 2009, 4:37 am EDT

Clueless commentators attributed yesterday’s stock-market selloff to weak manufacturing data and supposed fears over job numbers due out Friday. What poppycock! The pundits would have gotten closer to the truth if they had cited sunspots or unusual seismic activity at Yellowstone. Shares plummeted for the simple reason that they were ready to plummet. Think back to March, when this bear rally began. Since then, when have traders evinced even a twinge of fear over economic data?  In fact, they have ignored a steady stream of appalling economic news in order to obsess over a statistical recovery so ephemeral that it barely qualifies as a mirage.

Channel1

What has “recovered,” mainly, is the stock market, which is in the throes of one of the most powerful bear rallies since the Great Depression. Some other green shoots sprung entirely from the imagination:  a blip in retail sales attributable to the cash-for-clunkers giveaway; a blip in consumer spending – again, credit the clunkers; a blip in home sales that reflects the success of auctioneers, not Realtors; and a blip in home prices that is more dead-cat bounce than prayed-for inflation.

Not Rocket Science

Concerning yesterday’s broad plunge in the averages, it doesn’t take a rocket scientist to discern its cause. Just look at the chart above. The quote from our friend Garrett Jones, Bay Area forecaster, says it all:  The rally from the March lows has been so extreme that it was bound to correct when it reached the upper threshold of its price channel.  This is what we meant when we said stocks plummeted simply because it was time for them to plummet.  The mood of investors has changed, and with it perceptions of the news. For the last seven months, as far as Wall Street was concerned, all news was good news.  Now, no news will be good news.  It is hubris itself that is about to slip back into a bear market.  

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  • gladstone October 4, 2009, 9:07 pm

    [For gold to enter into a massive parabolic phase, you need to see backwardation. Now, gold futures contracts do not tolerate backwardation well, as you would find in other commodities.]

    Let’s not forget the largest backwardation we have seen thus far in gold happened when gold was making the biggest correction in 9 years. A rising gold price will correct backwardation. A falling gold price will tighten backwardation giving support to price. There is a floor to the price of gold and we’re very close to it right now as last year proved. Happy gold hoarding.

  • FranSix October 4, 2009, 2:07 pm

    @Gold demand

    Given that the unprecedented demand for gold has already been an acknowledged fact for over a year, and that tightening supply is also an acknowledged fact for some time now, it will all depend on just where lease rates wind up.

    For gold to enter into a massive parabolic phase, you need to see backwardation. Now, gold futures contracts do not tolerate backwardation well, as you would find in other commodities.

    But if short term rates were to rise beyond long term rates in gold leases, then this would set off a massive move upwards. Or, at least this would be the signal. The spread between long term rates and short term rates is narrowing little by little, and by the by, we should see positive short-term leasing rates. The reason why central banks aren’t ‘selling’ their gold is precisely for this reason. (my assumption.)

    But we haven’t even seen the monetary value of bullion keep pace with its real value for at least 30 years, so the first adjustment would be the monetary value should equate with gold’s advance against commodities, a move of several hundred points.

    @Satyajit Das

    Satyajit Das has a well written article on his blog:

    http://www.wilmott.com/blogs/satyajitdas/index.cfm/2009/10/4/Still-The-Masters-of-the-Universe

  • Aprovocateur October 2, 2009, 9:40 pm

    Right on! You d’man Ricky!

  • cameroni October 2, 2009, 7:46 pm

    The question of how gold will react to a general market decline will really depend a lot I think on how rapidly the air comes out of equities. A long slow painful deflating could be positive for gold. I don’t think many doubt though that a market shock could see gold back at 750 in a heartbeat much to the dismay of all those who have pinned their hopes on a steady rise in gold prices. I have sometimes let my heart get the better of my mind when mixing the long term big picture with short term realities and I do think this is a good time to be cautious with gold despite it’s future prognosis.

  • bob sochor October 2, 2009, 5:28 pm

    Rick, my father has been a subsriber for a few years now RWSOCHOR, we have been gold/silver investors for about 30-40 years in our family as we still hold some stocks from my grandfather,and I would like to take him to one of your seminars when you have them along the East coast. We are Jersey boys as well and we find your commentary very insiteful. Do you have a schedule for anything upcoming on the east coast, because I would like both of us to come out and learn about your pivots. Thanks Rick

  • Socrates October 2, 2009, 4:44 pm

    I said it long time ago and I will say it again.

    ES high in October 9 more likely 22nd now at 1126-1143. YM 10,364-10,800. No monthly close should be above 11,339 or 1241.50 or the Hyperinflation has kicked in.

    So these highs should come about in October 2009 and then down to 4,200-3,800 and 420-380 on YM and ES.

    As I have been the only one proclaiming -and the ONLY ONE doing s0- all metals, commodities ( some will make highs though like coffe in 2011) will see deflation till 2010 and some will go lower in 2011 and then the spike up happens…parabolic till 2014. Most commodities will be making new highs or highs in 2013/2014

    Gold and i mentioned this a while back will make a high between 1022-1033 or a spike above a little. False break out. I expect this to correlate with the high in ES and YM in Oct 2009.

    If I’m correct gold will fall with the stock market to $800 and make the lows when the stock market does. The lows in the indices are and metals will be next year in 2010. Gold and silver may have final lows in 2010 but other commodities will test lows in 2011 and some like Coffee will make highs in 2011. When TIME comes its either a HIGH OR LOW, no matter what the STUPID NEWS IS TELLING YOU.

    The only question is the indices. Will ES and YM join in the hyperinflation till 2014 after the lows in 2010??? If they do then YM to 30,000 and ES to 3,600 or above. Yes you heard it HERE FOR FREE FIRST. These targets by 2015!! If the indices do join in then they will crash big time in 2016 as the interest rates will be rising from 2013/14/15. Remember Eurodollar….fortune making here. Since the dollar will be reaching all time lows and profits from companies will be up to the moon….the indices to hyperinflate. Nonetheless, commodities and metals are a sure thing.

    US dollar ( US index) one more rally after stock mkt high in Oct 2009 till the low…then down to 41 cents by 2012. See the painting now follks…..

    I know the metals and commodities are going to the moon and the CAD is the best currency till 2014. US dollar ( US index to 41 cents by 2012. This will be the low and be retested 3 times till 2014). US index and dollar will resurge after 2012 more likely 2014 and make a high in ???

    Sugar??The next money making opportunity along with the Yen. Yen low will be in Jan 2010 after this Sept spike and then zoom up till 2012. Remember Coffee.

    I should start a service. Call it the “Billion dollar baby” a la Alice Cooper. On second thought maybe “Uncle Remus and the Future.” Uncle Remus from the late great Frank Zappa. On a third note…how about “One nation under a groove” by the iconic George Clinton and Funkadelic.

    Subscription rates: $7.00 a month ONLY.

    Good trading.

  • Rich October 2, 2009, 4:29 pm

    Weekly Big4 Alphabet Asset Allocation Traders called the markets pretty well, if slow, with sells in 40 contracts from Aussie to Yen with sells of big stocks, gold, platinum and silver in between.

    As Garrett and Rick suggest, when the collective market mood turns sour, there may be few places to hide. From buying dips to selling rallies in a week. Pretty amazing.

    As Gladstone observes, the flight to quality gold stock trade is not working.

    Could this be because FDR declared gold illegal in 1933, with dividend paying Dome and Homestake two of the few ways you could still own gold and profit?

    http://en.wikipedia.org/wiki/Executive_Order_6102

    We also note in passing the Rothschilds pulled out of the London Gold Pool and many banking interests in 2004, with David de R opening investment banking offices in America. Maybe that’s why the Big4 are 71.1% long the dollar.

    Could be the most interesting trade right now is bonds, where the Big4 are short along with Euro Funds. Selling the bond rally on strength might make more than a little cents.

    So when does Yellowstone erupt?

  • Bill October 2, 2009, 2:21 pm

    A FUNNY THING HAPPENED ON THE WAY TO 10,000.
    On 9/23/09 the DIA looked to be in position for “the run” to 10,000 and above. In the afternoon it crossed resistance at 98.50 with breakout volume and it looked like a we were on the way. As it crossed 99 SOMEBODY stopped it cold. Two hours later we had a big “rickshaw man” and a long red confirming candle on the hourlies with relatively huge volume. Gave me one of those little queasy feelings. Could it be??–

  • gladstone October 2, 2009, 8:17 am

    I have that bad feeling in my gut that gold and the mining shares will follow the general stock market down again like we saw last fall. Gold going up during a stock market crash seems to be more and more of a fairy tale. I’ve been invested in gold (mostly mining shares) for years to hedge myself against the coming collapse. As it turns out it wasn’t such a great hedge after all. O.K. so gold did alright but to be honest it really wasn’t worth the effort. I should have just been invested in the DOW as it would have accomplished the same thing.

    Rick, I hope you’re right about the 1074 target on gold. But if we are indeed seeing the end of the bear market really than I think we can kiss gold bye-bye. I have nowhere to go but down the road to losing money. Damned if you do and damned if you don’t. And I refuse to hoard U.S. dollars as an investment. Our government is a bunch of whores and I won’t help support them until they begin to be responsible.

  • Occdude October 2, 2009, 6:10 am

    I knew something was up when Tokyo was getting hammered the night before.

    The cracks are beginning to show, I knew as soon as the bears started getting bullish we had hit a top. This correction is across the board, meaning deflation is in full control, only gold and oil, which appear to be waiting for dropping bombs in the middle east, seem not to be falling as fast.


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