(February 13, 2002)
Was today the top? Sorry if you have seen this a million times already:
Recall our comments on Monday evening. We stated: "If the same pricing patterns play out once again, then tomorrow or Wednesday should represent a high for the Dow. From thereon, the Dow would test (and fail) its September 2001 lows before plunging to below 7,500 (with virtually no opportunities to get out along the way)."
We stand by our comments tonight.
Today big news was the stronger-than-expected retail sales data. It went something like this: "Retail sales dipped 0.2 percent overall in January, but were up a larger-than-expected 1.2 percent excluding automotives, the Commerce Department said in a report issued on Wednesday."
Okay.in the December report, automotives were included precisely because it contributed heavily to the positive tone of the report. January, it is excluded because of the opposite. Without automotives, retail sales were dismal in December, so it is no surprise that we are seeing some bounces in January.
Moreover: "While gains were seen in many retailing sectors in January, the overall number was boosted in particular by a 5.1 percent increase in gasoline station sales, largely the result of higher prices at the pump. Excluding gasoline, retail sales were actually down 0.6 percent in the month."
So there you go, without rising gasoline prices, retail sales were actually down more than expected during January. Last time we checked, rising gasoline prices were supposed to be bad for the economy. Certainly something is VERY WRONG with this picture (and the prevailing optimistic view).
I would argue differently about today's action. Today's action was driven more by short-covering than anything else. Volume was light once again and what's more, the Dow Transportation did not confirm (it actually closed down). The VIX collapsed once again suggesting we are at a point where a decline is much, much more likely than a further rise from here.
Despite the moonshot in the Nikkei, gold again, did not collapse. From hereon, we are starting to become more bullish on gold (we may even consider some gold and silver-mining stocks for our model portfolio). This is also suggesting that the big money has suspicions about the so-called economy recovery-one that most likely would not happen. The action of the next few weeks will tell.
By the way, the model portfolio has been updated.