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February 1, 2004

Bull Trading on Delusions

By Kathryn M. Welling

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If I hadn't learned, the hard way, in the late 1990s, that Lord Keynes was entirely correct to suggest that markets can stay irrational far longer than investors can stay solvent, I might be tempted to do something foolish, like call a top. Instead, I called Justin Mamis. My mission: to find out what clues his gimlet eye for technical trends and his vast experience in the market were providing him. What I found was a portrait of the analyst as a frustrated man.

The "good" news, Justin relays, is his wife's observation that his is the rare sort of frustration that has always, in the past, heralded truly significant changes in market trends. The bad news is not only that the change will likely be in a significantly negative direction, but that nothing he watches is giving Justin a clue on timing. -KMW

Justin, did I catch you muttering about a "flawed market"?

You and my wife. The thing is, all the indicators everyone has relied on for years to try to get a handle on what the market will look like in the future have become unreliable. And yes, I realize that to call the market flawed here reveals an "old" man's prejudices-make that his preference for what he's used to. Then again, what has changed about the NYSE Specialist System since I once roamed the floor is, indeed, flawed. And it does seem that a Pandora's box has been opened by the bursting of the bubble: Enron, Tyco, Parmalat and all the rest; the mutual fund malfeasances, the one-way Street kind of breadth days, penny spreads, the dominance of program trading and ETFs [exchange-traded funds], public disinterest (except from hardcore speculators), etc., etc. Then too, you see, I'm firmly convinced that all of the debris from the stock market bubble hasn't been washed away.

I detect no little frustration in your voice-