This is a pretty important post, so I'm going to put it up and leave it up until the market closes (with apologies to readers who don't like seeing hundreds and hundreds of comments in a single post).
Regular readers are quite acquainted with my chicken-scratch drawing from October 18, 2008, laying out where I thought the market would be headed over the coming years. This chart, for me, represents a point of pride and a point of shame:
- I am immensely proud that, so far, it has been extremely accurate in terms of market direction. The S&P did indeed fall hard (although it exceeded my 711.50 level by 45 points), and it certainly exploded higher after that, just as I conjectured.
- I am immensely ashamed of the fact I did not exploit my own insight to take advantage of this year's rise. This was an incomprehensible failure on my part that I live with every day.
But my drawing holds a lot of weight for me, and it is based on the notion that we are in a 1937-1942 style market. Below I have tinted that market's surge higher, which is precisely what we're going through now.
The big question now, of course, is whether 1152 – – the level I predicted, but which I felt was unthinkable when I did my projection – – is going to be met or not. After all, we didn't fall to 711.50 – we fell 45 points below that. So what does it mean?
My thinking is that it means 1152 will not be reached. By updating my calculations, the new figure would be between 1080 and 1100 (which, errr, is where we are at as I am typing this).
Now, in this business, taking a stand on anything is a thankless task. If you're right, people don't really remember, but if you're wrong, you are subject to derision and mockery.
It's much safer to basically say things will either go up or down, and the next time you write about the market, carefully pull out the quotes that line up with reality and make yourself look like you nailed it. (I won't name any particular publications, Should That Upset them).
So what went wrong? I paid too much attention to the form and not enough to the size of the former move. Here is the move I was anticipating from 1938…….
And here is the updated view of the 2009 instance:
I have been very conservative lately, but the gloves are going to come off tomorrow. If I were feeling really aggressive (and I am not), I would start shorting today, but the risk of a GOOG blowout is too great.
So I'm going to continue to sit on my hands for one more day. But then I am going to start getting into position. If GOOG doesn't work its magic for the market, so much the better, but I'm not counting on it. GOOG doesn't make a habit of making the market go down. So, in a way, I'd love for GOOG to have a blowout and drive the S&P to 1100. It would make shorting that much sweeter.