'C' ya, Wave B

Well, well, well. Wave B did end, not with a whimper but a bang! After all the focus on macro data, investment bank earnings, ABS, and MBS, wave B ended courtesy of that most prosaic of factors: MSB (More Sellers than Buyers)!

To date, most of the damage has been concentrated in equities. Credit, EM, and risky currencies are showing relatively little signs of distress, much to Macro Man’s chagrin. He is left in the uncomfortable position of having called the SPX more or less correctly but having nothing to show for it on a portfolio basis, as his alpha shorts have not moved as much as his beta longs. A perfect example of why so many portfolio managers are either bald, gray, or chain smokers....

Macro Man has been struck by the degree of complacency this morning. All things risky were marked wider/lower overnight and at the open, but the marginal flow appears to be buying rather than selling of risky assets. Irritating, to say the least....but Macro Man suspects it will end in tears.

Now that Wave C has begun, we can re-consult the roadmap sketched out a few days ago. If Macro Man’s analysis is correct, the bottom in the SPX should be roughly 1320-1330, as set out below.

Macro Man is unsurprisingly busy in his real job, so this morning’s post is brief. More colour will be added as circumstances dictate: suffice to say that today could well be a day on consolidation, but any small rally is meant to be sold until the end of next week, give or take. Good luck!

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March 14, 2007 at 12:22 PM ×

Continuing with the theme of repeating patterns...

Does late 1977 come to mind here? Bull market that never made it to the previous multi-year highs and relatively low volatility (for the times, at least).

The long, slow bleed that followed probably made for a hard slog no matter what side of the fence you were on.

March 14, 2007 at 12:32 PM ×

Forgot to mention...

Europe is calling (maybe) a one percent drop in the S&P whose own futures say one-quarter of that for the open, this at 13:30 CT.

Macro Man
March 14, 2007 at 1:04 PM ×

I'd say a major difference is inflation and wages. The latter part of the 70's saw a wage/inflation spiral, the worst of all combinations for risky assets. (remember Whip Inflation Now?)

Despite commodity price rises, the equivalent spiral of headline inflation and wages has not occurred, largely because og globalization and the concomitant disinflation on manufactured goods prices, in my view.

March 14, 2007 at 2:18 PM ×

I agree totally (and remember it well). I mean to imply nothing beyond the visual, visible similarity. On the other hand, since there is a very limited variety of outputs available to result from a wide range of inputs, there probably doesn't have to be much comparability between the two environments.