Tuesday, August 11, 2009

Technicians getting antsy...

I've noted with some disgust the power of the chart readers in moving the markets. Last Friday the technicians noted that the markets had hit resistance and failed to break through again. Today the grand poobah of technicians head of Elliot Wave International said that we're on the verge of the next big move and that move is going to be down. In February, he correctly timed a rally in the stock market and accurately predicted a move of about 40%.

His current prediction is that he is "quite sure the next wave down is going to be larger than what we've already experienced," and take major averages well below their March 2009 lows."

If true, this would mean another 40-50% decline in the stock market. I don't see any direct cause for such a move but the technicians' predictions can be self-fulfilling.

Yesterday I made reference to Japan's lost two decades (which is more like a lost 2 1/2 decades now).

It's helpful sometimes to see what that looks like.....

Another quick thought on Cash for Clunkers. At some point this burst of business is going to start crimping business for dealers unless the rebates start flowing to the dealers.

For example, if a dealer takes 25 deposits and moves these cars to the back of the lot pending rebates, his total inventory is cut in half. Does he rush out and reorder expecting the Cash for clunker money to come in? Or does he sit on his hands with limited inventory until he's sure the government's check will clear? I have a sense that there may be a little of both going on (depending on the dealers' financial health) and this may create some significant lumpiness in auto sales in the coming months.

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