Once again it looks as if the Dow Industrials’ winning streak (now at eight straight sessions) may be in jeopardy, but it would be foolish to underestimate the bulls’ ability to turn things around, especially late in the session.
“These days, opening indications and actual closing prices are two very different animals,” Barry Ritholtz noted earlier at the Big Picture. He has a precise summation of how the bull vs bear battle has gone during the past several months:
In the face of massive liquidity of QE2, there remains a firm bid beneath this market. So far, losses have been modest to minuscule, with selling pressure well contained. M&A, share buybacks, anything but disappointing earnings are an excuse to put on the rally caps. Even dips are an excuse to buy. (We are running 53% cash on specific name selling, not overall market calls).
The bears are bloody but unbowed — they know a correction is imminent. But the bulls have heard this line for nigh on two years, and yet still the market still powers higher. The Dow, S&P and Nasdaq are all at multi-year highs. There is a difference between being early — a matter of days or weeks — and wrong. So far, the bears have been wrong.
Eventually, the grizzlies must be fed. They have their champions, including various Fed Hawks, who are terrified of an inflationary spiral. Lacker, Plosser and Fisher may be mortal enemies of price instability, but they are friends of Yogi and Boo-Boo and Baloo, well known amongst ursines for their opposition to easy money. And easy money is a bull’s best friend.
Even the most ardent bull knows that this too, will pass. The bears will have their day, before their next bout of hibernation.
The 64 trillion question: When?
When, indeed. No one can say for sure, but from our vantage, the market’s run reminds us of one of those police chases that pop up occasionally on cable news channels in the middle of a slow day.
TV cameras in helicopters track the action as the fleeing suspect manages to maneuver around all sorts of obstacles or impediments, craftily finding ways to elude the cops. Highways, side-streets, wrong way on a one-way road, running red lights, riding in the breakdown lane to skirt traffic jams — the guy just finds a way to keep on going.
Similarly, the stock market has dodged and evaded one potential road block after another: Ireland’s banking problems and eventual requests for EU assistance; concerns about Portugal and Spain; ongoing misery in the housing market, with prices showing signs of buckling again, and a pipeline of foreclosures clogged by shoddy loan documentation; a weak job market where the best feature is that it’s not getting worse; talk of global food shortages; awful fiscal positions of states and municipalities; soaring commodity prices, which threaten to crimp profit margins, stoke inflation and burden consumers; and popular uprisings in the Middle East, the world’s most volatile region.
Each of those issues remain unresolved and each alone has presented the equivalent of a spike strip for the stock market as it speeds down the highway. In each instance, the market has maneuvered around it, or run over it and kept going, even if it means shredded tires and riding on rims.
How many times does the driver look hopelessly cornered, only to find an escape? He pulls off the highway to avoid a jam, but finds traffic backed up on a busy street. No matter, he just drives up onto the sidewalk.
And so it has been with stocks, incredibly avoiding all obstacles, not getting cornered into a big selloff. Even if the DJIA’s streak gets broken, it’s unlikely to be much of a setback. This car, engineered by the Fed with bullet-proof glass and puncture-resistant tires, speeds on.