But none of that matters if people only want to pay attention to the positive stuff. So it is the positive stuff that will make the headlines if the markets are rising.
My baseline expectation was for a deeper selloff this summer toward the 780 level on the S&P, followed by a strong spike to marginal new highs around 1000-1075 before falling off a cliff in the last months of the year and into 2010. But this week's early rally higher needs to be considered something other than a simple oversold bounce - especially if it holds today into the close. It will be telling us that optimism is still in control and higher prices can be expected immediately. However, that may not be a good thing for the overall market as the summer wears on. Without that large and protracted selloff, there will not be enough overbought conditions worked off and the market will be ripe for total exhaustion as we enter autumn.
Contingent to today's extension higher holding into the close, I am changing my top expectation from the first chart to the second chart for the remainder of '09. Of course, either or neither of these scenarios could play out.
Either way, the function of this entire rally from March until whenever it exhausts itself is to convince as many people as possible that the worst is over. By the end it should be "common knowledge" that the recession is behind us. We should see many prominent figures claiming the same "without question." Very similar to the sentiment that was prominent into the summer of 1930.
Taken from News form 1930:
July 8, 1930: Winthrop, Mitchell believes market is in much better condition after recent liquidation, believes stocks "getting near rock bottom levels", would buy many major stocks on further selling. They may go a little lower, but not worth trying to pick a bottom: "The long pull prospect of large profits is too good to be concerned about 5 or 10 point dips, which later will be regarded as only minor setbacks in a major upturn."
July 7, 1930: Finch, Wilson, & Co.: “We believe that many stocks are now selling far below their real value and that purchases can now be made with a minimum of risk and a maximum of confidence of higher prices later.”
July 1, 1930: Labor Secretary Davis says business is definitely turning up in the East, predicts reasonable prosperity within the next year. “People have learned once again that only work produces wealth.”
June 30, 1930: P.E. Crowley, pres. NY Central railroad: “I cannot believe that this country of ours, with its great and resourceful population ... can long remain in a state of depression, business or otherwise. I believe ... that we have turned the corner; that we will slowly but surely go forward to at least as great prosperity as has ever before been attained.”
There was some sanity however:
July 4, 1930: H.H. Allen, economist, says history indicates we're in for two or more decades of price decline. Calls on business to adjust. Says that declining commodity prices don't inevitably cause depression, and normal profits are as possible in periods of declining prices as in rising.
Wash, rinse and repeat.
This morning from CNBC:
And let us not forget a few years ago:
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