What a Difference a Year Makes

Do you remember a year ago?

 The market was bouncing off the March low into the July earnings reports. All the pundits were talking about about the big “Head and Shoulders Formation” that was pointing to a continuation of the selloff from the October highs and would lead to lower lows. We thought the Daily 50 would be the turning point and would be the upside resistance that would turn the market lower.

Well for lots of us bears,  by December we were saying, “This market is never going down again.” and we went into hibernation.  

It was a long cold winter for the Bears. We poked our heads out in February and saw that February low and thought, “Here it is..It has started !” But the ground hog had poked his head out a bit earlier and said “Nope..not yet, we’ve got six more weeks till spring. Go back to bed.” So we slept a few more weeks until late April and poked our heads out again. We were hungry from the long winter nap only to see the Bulls were running rampant, ripe for the slaughter.  Just in time to recognize that the 1st Quarter earnings just weren’t  all they seemed to be.  It was then we started picking them off, one by one. First AA and INTC. Then IBM,  TXN and  APPL.  By late June we were pretty full and decided to take our profits and store them up till we got hungry again.

As it happens in nature, the older Bulls started to die off, unable to teach the young Bulls about the danger of Bears. By the middle of July, the older Bears and the crop of new young   Cubs recognized that earnings season was here again. The older Bears had been teaching the Cubs  that a weakend Bull and  a young Bull are easy prey and the best time to strike is July earnings to begin storing for the long winter ahead.

Apparently, the cubs have taken the lessons to heart.  AA, INTC et al, so far have popped and dropped.

If the after market reception today for the earnings of IBM and TXN are any idication, the Bears are hungry and realize that there may be several cold winters ahead.

So the question is “What has Changed to make this difference?”  Elliott Wave Principles applies the change to  “a change in sentiment” .

 From the current earnings reporting the corportations reporting  so far have better earnings YTD from the prior year, (mostly because of lower labaor costs and higher productivity). In fact INTC has record profits. Today the guidance from IBM was for higher earnings P/S looking forward  to year end. I ask, how can that change “sentiment”?. It should be better. If so there must be other factors involved to change the “sentiment”. I believe there are and I place most of the blame for this change in “sentiment” directly to the changes in the business  environment created from the legislation passed by Congress and encouraged by the hostile attitude towards American business emanating from the Obama administration.

At this time last year, the market had made a modest recover based on the actions of congress with the passage of  “TARP”. This legislation bailed out GM which had gone bankrupt, promised a reduction of the unemployment rate to 8%,   and on and on with more political propaganda that relief from the recession was just on the horizon. The promise was that by increasing Federal Deficit spending to the tune a trillion dollars, the American economy would somehow miraculosly recover from the “Bush buscrash policies” of the prior eight years.

To further fuel the “hopeium hysteria” ,   Congress  passed legislation, which amounts to a takeover by the Federal Government of 1/6th of the American economy, of Obamacare. Nancy Pelosi said, “we won’t know what is in the bill until it is passed.” They then just recently passed a massive “reform” bill of the financial sector, written and sponsored by the perhaps two most corrupt politicians in American history. Frank and Dodd. They again promised, that once passed “we’ll be able to see what’s in it”

Well guess what. Industry  and investors are recognizing what is in this legislation and slowly recognizing that promises made are not promises  to be delivered. The “sentiment” is changing in a dramatic fashion. The “guidance” is not good and investors are seeing this.

Good luck and Good trading.