Reply #1: WrapUp by Martin Goldberg [View All]

Market Internals Suggest Nasdaq is Far from Healed

The Nasdaq three-week rally from about 1,865 to over 2,023 may have been the mother of all sucker’s rallies. While many in the media proclaimed the previous Nasdaq swoon to 1,880 as just an aberration in the new long-term Bull Market, the lack of any serious conviction during the subsequent rally from average or better-than-average trading volume, suggests that the rally is probably not sustainable. Tonight will look at some key market internals, along with technical analysis of three closely related speculative indices that support my conclusion that this is a Sucker’s Rally.

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Suzie Orman (Of All People!) Promotes Market Crash

Get on your crash helmets! Best-selling author, Suzie Orman, perhaps one of the few CNBC financial personalities that provide any good information to their audience, is promoting crash behavior. Her generally good message is geared to the “average” investor who may be socking money away in a 401K or IRA, and may have an Ameritrade account on the side. Her message includes getting out of household debt, saving, and investing as well as responsible financial planning. Her saving and financial planning advice is obviously good, but her recent article, “Exchange Traded Funds, Mutual Funds of the 21st Century”, advocates the use of exchange traded funds for plunge protection. She touts the liquidity of the ETFs as a major advantage: (Note: emphasis added in bold, and parenthesis inserts for clarity)

“Imagine this scenario: It's 10 a.m. and you hear that the market is tanking. You have been on the fence for a few weeks, wondering if it's time to get more defensive, but this latest market slide pushes you into action. You quickly call your fund company or discount brokerage and sell your aggressive funds. Then you sit back and watch the market fall another 200 points, with the calm satisfaction that you got out before the damage was done. That would be premature gloating, my friends. Despite the fact that you called your fund company or emailed your 401(k) plan administrator to make the change at 10 a.m., your "trade" isn't put through until the close of the trading day, which is 4 p.m. Eastern. In technical terms (unlike exchange-traded funds), mutual funds don't trade "intraday."”

While it is true that ETF’s offer excellent liquidity and advantages over under performing mutual funds, is use of ETF’s by amateur investors for plunge protection good for the stock market? In addition to a host of professional fund managers hitting the panic button when the stock market begins to crash, we may now have the rank amateurs such as readers of Suzie Orman trying to do the same darn thing with ETFs. With everyone, professionals and amateurs alike, considering their escape route, a true crash is a realistic and perhaps likely possibility. If individuals and institutions are all bailing out at once, I wonder just how successful Orman’s ETF strategy will be versus relying on the professional fund manager to “get them on a life boat”. You may be wondering, if the potential for a stock market crash is so great, what has kept it from crashing for all this time in spite of your thus far, incorrect views? My personal opinion is that the Nasdaq is one high-volume 80-point “down” day, from the crash scenario which is described by Orman. A consistent reader asked me a similar question and also questioned me as to when I think such a crash would occur. I replied that it would probably happen on the day when it is least expected (that would be tomorrow).

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