So, The Stage is Set...

Usually after run ups as we have seen there is a historic retracement, often occurring on a Tuesday, just as you'll often some of the strongest upsurge days. Yesterday was so flat it could, yet again, be interpreted two ways: 1. The market is at a top, OR 2. The market held on a potential downturn and there wlll be more upside.
We could make no moves with either of our signals by 3 p.m., a market not even worth


We will lead today with some shared commentary from www.bluechipoptions.com:

“The idea that there is a competitive 'private sector’ in American is appealing, but generally false. No one hates competition more than the managers of corporations.

Competition does not enhance shareholder value, and smart managers all know they must work at ways at “controlling” government intervention.

This is is not new. This is not Obamaland. When Congress created the first regulatory ageny, the Interstate Commerce Commission, in 1887 the railroad barons quickly recognized they were to be subdued, but could benefit. “The older a commission gets to be the more inclined it will be take the business and the railroad and business point of view. It thus becomes a sort of barrier between the railroad corporations and the people and a sort of protection against hasty and crude legislation hostile to railroad actions.”

All the above from Richard Olney, a railroad lawyer during that time period that lived his thinking, as soon after this quote he got himself appointed to run the U.S. Justice Dep, where he spent his days busting railroad unions.

8 states in the U.S. consider “spousal abuse” a pre-existing medical condition.

As we trade this week remember that equity mutual fund flows remain in the red; the little guy isn't all in yet. This is key, as he must enter,and these trading dollars further stimulate the market, and will, we think, lead to greater upside.
Part of this is Fibonnanci, who's math tells us 10,700 is a normal retracement from the bottom we reached. And remember the stock market, for whatever reason, in emotions (upside or downside) ALWAYS precedes the public.

And yet, trader MR studies well and shares:

I was reading on the “History News Network” tonight about the 1987 stock market crash. Tonight I was curious what caused the crash and what the market conditions were at the time. One explanation was G7 policy and issues around US currency valuation. Other explanations were tied to computer trading, derivative securities, liquidity, trade and budget deficits and overvaluation.

Brief thoughts on each contributing cause of the 1987 crash in light of our current conditions:

The US dollar is currently in a free fall and if it ever gains support, that's GOING to affect the market. Granted today (11-16-09) it broke through strong support and made no signs of turning back, so we may not see that any time soon. Also it may not be undervalued at this point - due to the current flooding of the market from federal fiscal policy. If it ever finds support, there will be ripple effect felt around the world.

Computer trading - we've seen this in the news recently. The hyper trading programs of the market movers have been suspect of causing some of the run up - and certainly could contribute to a quick run down.

Derivative securities - we trade these :) but the derivatives market is growing exponentially, and is firmly embedded in commodity markets so that the effects of derivative trading can be far reaching.

Liquidity - In my mind that makes me think of some of the big banks that are still insolvent... (As are many of us) That can't be good.

Trade and budget deficits - Last week's recent international trade report showed just that the overall U.S. trade deficit widened by 6 billion dollars in one month's time. And our budget deficit needs no real comment, but here is a fun fact i found today: Of the $5 trillion in gold ever mined... in HISTORY- The U.S. debt is more than double that amount so far this year.

So the stage is set. There is no guarantee that a crash is coming, but there are certainly ingredients available. Some would argue that today's circumstances are unique to 1987, but at the same time I think many would agree that we can't separate the similarities.