Once again, sellers were denied a piece of the pie in today's session. Despite another morning of toppy action, the early break to the downside was quickly arrested. Indeed, anyone trying to short this market has been slapped with quick and painful fines.
Back in July, when this rally was in its infancy, I wrote that the market would rally enough to instill overconfidence in the bulls and make the bears feel as though they had been duped once again. Of course, I never dreamed the market would go straight up for four months, and there have been many points along the way where I was confident the rally was nearing its end. I put my money behind those convictions and paid the aforementioned fines for doing so.
So, exactly how crazy can things get? Many people enjoy making references to 1999/2000 when the Nasdaq doubled in the six months preceding its infamous top. Few remember that in the last three months of 1998, the Nasdaq surged 75% without blinking. In the nine-month interim between those two surges, the Nasdaq tacked on a paltry 15%. Add it all up and you get a quadruple in 18 months.
I do not believe we are witnessing the same type of craziness as the tech bubble. The lesson to be drawn here is simply one of reference. The Nasdaq has gained nearly 25% since July. For that gain to quickly become 50% is not out of the question. Yes, we are entering a recession in the wake of the housing meltdown. You know the story. But craziness is not tamed by reason, only by exhaustion.
By the same token, things could turn on a dime at any moment. Exhaustion is difficult to gauge and could already be upon us. Also, an exogenous catalyst could arise at any time. Despite the difficulty of timing market turning points, it is prudent to at least make the attempt so as to stay alert. Looking forward, I believe the soonest we bears could reasonably expect to turn our Gain/Loss columns green would be the week after next. Equities rarely fall the week of Thanksgiving. The holiday environment tends to draw only cherry traders, and the low-volume trading enables them to push prices higher with little resistance.
On the metals front, gold and silver started their days out on solid footing, but reversed to close down nearly a percent. The reversal took the wind out of mining shares, which appeared ready to consolidate, anyway. The XAU shed 3%, with my favorites, Newmont Mining and Pan American Silver, falling in line. A glance at the daily charts of both these issues shows that volume on up days has swamped volume on down days consistently for a month now. While volume doesn't pay the bills, it is a comforting technical sign.
Of course, metals could have been reacting to this morning's fabrication of a tame CPI. If so, we're looking at an environment where traders are discounting the deflation of the housing bubble as having tamed inflation without hurting the economy. How convenient!
Tomorrow brings November options expirations, which, if recent expirations are any guide, means the action will be soporific. Fortunately, most of my puts are January and March-dated, so I do not have to suffer the indignation of worthless expirations just yet.
Disclosure: Long NEM, NEM Calls; Short NEM Puts