Monday, March 22, 2010


Obviously the pullback is NOT yet underway. But should we expect the rally to continue indefinitely? So far we are up to 30 trading days since the current rally leg began on February 5, but the Wilshire 5000 index is coming up on serious resistance at two prior intermediate swing lows. (34 days would be a common fibonacci number of trading days for the rally.) I will be highly surprised if it pushes through on the first try. If it does, then we must assume that this market is getting ready to go parabolic without a pullback.

Even though markets are at new rally highs, various measures of momentum are not. This is cause for pause for the bulls. A number of valid wave counts can be made. The wave (B) view has almost lost legitimacy, which leaves us with either a 5th wave of [A] or a 1st wave of [C]. I really have no idea at the moment, but I continue to be surprised by how much more robust this market is even though I have believed all along it would go much higher. This really speaks to high levels of liquidity due to Fed monetization of the debt.

One thing is clear with today's action: markets prefer certainty over uncertainty out of Washington even if it is not clear that policies are market friendly. We did not see a selloff with the passage of the health care bill.

I was at a seminar today on "green" building technology - more institutionalization of the economy. I'm all for energy efficiency. I'm just not for more layers of bureaucracy which don't actually add value to already existing structures and methods. It just adds cost and complexity. There are some very interesting things coming down the pike now that health care reform has passed. There are bills in the works that will mandate 30% reductions in energy usage in new residential and commercial buildings as early as next year. How this will be a boon to an already sagging construction and development industry is hard to understand. Over the last 10 to 15 years the frequency of building code changes has increased dramatically. This makes it difficult to measure the effects of these changes. Even so, a measured approach to changes in performance standards rather that huge leaps would make alot more sense.

Many years ago the industry adopted new ventilation standards in response to sick building syndrome. Now we know that the adopted standards went too far, and we have been spending way too much on energy to heat and cool all of this additional outdoor air to ventilate new buildings. New standards that will be coming out in two years reduce the required ventilation rates in half after 24 years. This is why I think a slow but steady approach to change is best. When we mandate major changes that have not been tested, it may take many years to realize the unintended consequences, and by then it may be too late.

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