starting to remind anyone else of Homer Simpson? No, the market hasn't been greedily eyeing any doughnuts or falling asleep on the job. But the repeated failed attempts to close above its Jan. 26 high have me thinking of Homer's patented head-slap expression:
Monday was the same story as Thursday and Friday: an early rally above the 2004 high of 2153.83 reversed and the index closed at 2151.25, up just 0.2% on the day and down from its intraday peak of 2,157.43.
The computer hardware industry was a bright spot as
posted a similar gain and
Dow Jones Industrial Average
was weaker than the Comp, falling 0.4% to 10,547.06 as analyst downgrades of
got things off to a bad start. Alcoa dropped 1.3% and Pfizer fell 2.4%. The
lost 0.1% to close at 1190.25.
With the Nasdaq's finish so near the coveted resistance level, investors likely will be treated to a fourth-straight attempt on Tuesday. The bulls are (naturally) optimistic it will turn out better than the time Homer lost his fortune in pumpkin futures and had to work as a slave for his sisters-in-law.
The market's consolidation around the prior high-water mark looks like a familiar setup to Al Goldman, A.G. Edwards' chief market strategist who has been with the firm for more than 40 years. A rally stalls, but selling pressure is weak even amid some bad news and "excuses" for profit-taking, such as Friday's disappointing employment data. The prognosis is for further churn followed by another move up, Goldman says.
"In-place momentum and positive seasonals suggest the market is going higher, but we think odds favor some churning and modest weakness over the next week or two, before the start of the year-end rally," he wrote on Monday.
The Spin Zone
Over in the bond market, with Friday's weaker-than-expected jobs report already factored in, bullish traders returned to their currency-linked play.
The dollar's further fall against the yen last week has renewed speculation that Japan soon will intervene by selling yen and buying dollars. Presumably, proceeds would be put to work in the U.S. Treasury market, as they were last year and into the first quarter, providing support for the bulls. The yield on the 10-year note, which moves down when its price goes up, fell to 4.24% from 4.27% on Friday.
The dollar's influence on Treasuries is a lot like that of rising oil prices -- a macro tide that is traditionally bad for bonds but bolsters the Treasury market based on a new spin. For crude, instead of worrying about inflation, i.e., the killer of fixed-income investments, traders fixated on the notion that higher oil would slow economic growth and, perversely, lower inflation pressures.
In the case of the dollar, a falling currency should be bad for bonds because it makes them less attractive to foreigners and fuels inflation. But again, the perverse spin takes hold -- the falling dollar effect will be overwhelmed by the Japanese buying. The theory got added backing when Japanese officials indicated that some bold action might be in the offing. Vice Finance Minister Koichi Hosokawa said his government would "act aggressively" in a "timely manner" to stem the yen's advance.
After falling to as little as 101.91 yen earlier in the day, the dollar rose to 103.29, about 1% above Friday's level. Against the euro, the dollar rose to $1.3415.
The threat of central bank intervention isn't all that potent over the long run, though. Jay Bryson, global economist at Wachovia, says the much-predicted moves by Japan and Europe could give the dollar "a bit of a boost" when they actually occur.
"However, intervention likely would not be effective in arresting the downward trend in the dollar unless the Fed participated," Bryson warns, suggesting that's pretty unlikely. "Clearly, the dollar could continue to weaken for some time."
Contrarians like to point out that universal sentiment in a market is often a leading indicator that a bottom, or top, has been reached and seemingly everyone expects the dollar to continue weakening. Then again, there seems to be equally widespread agreement that the dollar's decline will be orderly and almost pain-free.
It might not work out that way. Dick Hoey, chief economist at Dreyfus Funds, was out on Monday with his annual look at the year ahead. And while Hoey agrees with the majority that the dollar can decline slowly in the near term, he's a little more worried about the final burst of selling at the bottom of the cycle.
"Past multiyear currency trends have often ended with extreme overshoots," he writes. "So there is a risk that the final phase of the dollar bear market may eventually bring the yen and euro to extreme levels."
Still, he's hardly become a megabear. "For now, we expect the dollar to have an orderly downtrend interrupted by occasional rallies when it becomes oversold," Hoey concludes. That should leave room for the economy to continue growing and stocks to post "moderate further gains" in 2005.
Or as Homer might say:
In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send