Sunday, April 22, 2007

Dow 13k, Let's Hope It's Not Like Nasdaq 5k

I don't even have to look it up - the infamous 5,040 closing and then how little we knew ye Nasdaq 5,000. A fleeting double top and then DOWN, DOWN, DOWN in Rock Lobsterian style. My little chart to the left only depicts the initial decline of Nasdaq from 5k at the turn of the century, a descent that wouldn't and couldn't stop until every bit of excess and then some was wrung out of the 'Daq' down to 1108 intraday in late 2002.
Is there a correlation between Dow 13k and Nasdaq 5k? Not necessarily, but the bulls with the greatest of alacrity are targeting another millennial mark - this time for the grand old blue chip indicator which has been the bellwether and barometer for market froth these days. While I'm all for being optimistic and have enjoyed making money on my long bets in recent weeks, a few things have developed since 2000: an imploding real estate market; an out of control M3; inflation running at the top end of the Fed's so called comfort zone; $53 trillion dollars in unfunded future federal spending mandates; an epidemic Japanese Yen carry trade; unknown quantity of leveraged swaps due to the explosion of hedge funds in the last five years; gold knocking on $800's door; China with $1.2 trl in foreign reserves it wants us to think it doesn't know what to do with; the Iraq war; Iran's attempt at making nuclear weapons, etc. I know there are some big, big positives these days like Hillary Clinton being able to talk in a Southern drawl, or that we now have American Idol (something so sorely lacking in 2000), or that we have such upstanding men of integrity like Paul Wolfowitz running the World Bank who like to give young women under them (literally and figuratively) extra help in moving up the ladder. So we are blessed to such great tv shows and politicians with such great diction and benevolent managerial skills these days and perhaps that's enough to get the Dow above 13k - maybe in the first hour of trading on Monday - and have it well on its way to 14k!
Here's what I want to see beyond breaching the round number of 13k - the ability for the Dow to rise more than 2% beyond the millennial mark and to avoid any type of topish formation like that above double top. Much as the mo-mo enabled the Nasdaq to slice right through 4k to 5k in 1999 to 2000, I'm just curious to see if there's any similarity in millennium marks where strong mo-mo gives a free pass to blast through 12k, but then perhaps there's some law that says when a millennial mark fall in less than a year some market god somewhere says, "uh, uh, not so fast." and puts the hammer down. Perhaps 13k is more than just a number. Recall, in 1999 the Dow finally broke above 9k, then warped above 10k barely six months later then surged to 11k where it ran into a brick wall. In the recent past, more than one millennium mark per year is not always a good thing for the market - will it be different this time?
On the economic calendar this week - plenty to move the markets:
On Tuesday - Consumer Confidence 10:00 ET; Existing Home Sales 10:00 ET.
Thursday - Jobless Claims 8:30 ET
Friday - Employment Cost Index 8:30 ET, GDP 8:30 ET, Consumer Sentiment 10:00 ET, The Bank of Japan is expected to hold its interest rates steady.
On the earnings scoreboard, a ton of earnings - Monday 4/23: AMGN, KMB, TXN. Tuesday 4/24: BNI, CME, DD, LMT, NOC, OXY, T and WHR. Wednesday 4/25: ABC, AV, BUD, AAPL, BA, CL, COP, EXC, GLW, GD, FCX, HST, PEP, PHM, QCOM, RAI, UPS, WEN, WLP. Thursday 4/26: MMM, AET, BMY, BRCM, CAH, CCE, CMCSA, CFC, DOW, EMN, XOM, F, FO, GR, HAL, HIG, KLAC, MSFT, MMM, MNST, NWL, NEM, SNDK, SO, TRV, XMSR and VLO. Friday 4/27: CVX.
A few other notable dates -
On Tues the 24th: Former Fed Chairman Alan Greenspan gives a keynote address at the "Boomertirement" industry summit in New York. On Thurs the 26th: Fed Governor Frederic Mishkin, Dallas Fed President Richard Fisher and San Francisco Fed President Janet Yellen give speeches.

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