This is an important day. It's important we hold some gain, even a modest one. On Friday, the markets sank, but it's not that they sank, it's where they sank to. We ended essentially at the August lows (let's not quibble about a few points here and there), which were the lows for last year.
Inflection points
Dow: 15,666 (August low)
S&P 500: 1,867 (August low)
Nasdaq: 4,500 (August low)
Now, you can believe in technical analysis or not (a lot of you think it's a bunch of voodoo, I know). That doesn't really matter. What matters is when the trading community is confused on the fundamentals (as they are now), they turn to technicals because it at least offers some guidance on what to do.
And when the major indices are all on the verge of breaking through the lows of last year, that is a big deal.
So much wailing and gnashing of teeth were evident over the weekend.
That's why it was important that we bounce Tuesday. Crashing decisively below the August lows would bring out an even more intense round of wailing and gnashing of teeth. Wall Street is starting to resemble a never-ending Irish wake.
The key, of course, is oil, which does not behave. We are rolling over into a new contract tomorrow, so we will get a modest bounce, but that is not going to fool anyone. Oil stability is a necessary--but not sufficient--element in market stability.
Would even stable oil calm the current spate of gnashing and wailing? My friend Zach Karabell wrote an amusing piece for Politico over the long weekend, "An Economy of Chicken Littles," in which he takes on the sudden surge of "Chicken Little" analysts and strategist predicting the end of the world. He notes that the number of jobs created, modest GDP growth, and lower gas prices are all positive trends.
He acknowledges Wall Street has had a long history of market Cassandras but that the current crop "sound more like Chicken Little, full of hysteria and short on substance...fiction as an electoral strategy does us no good, nor does calling for a collapse in the financial system help manage its challenges. Those tactics are the rhetorical equivalent of shouting fire in that crowded theater, designed to generate panic and fuel hysteria. They are wrong, and they should be called out."
Amen to that. The problem is, the Chicken Littles have been right on oil. And--as every good behavioral economist will tell you--being right on a big event even once gives you a cache you can live off of for years, even if everything else you say is completely wrong. Having been right on one thing, is it any wonder some of these Chicken Littles are strutting?