Y2K. The bark that didn't bite? December 13th, 1999  By your patience, Aunchient Pistol, Fortune is painted blind, with a muffler afore her eyes, to signify to you that she is blind; and she is painted also with a wheel to signify to you, which is the moral of it, that she is turning and inconstant, and mutability and variation; and her foot, look you, is fixed upon a spherical stone, which rolls and rolls and rolls. In good truth, the poet makes a most excellent description of it. Fortune is an excellent moral. Shakespeare, Henry V, Act III, Sc. 6 What happened to the expected Y2K market panic? As a kid I loved apocalyptic fantasies like On the Beach, or Lord of the Flies. Late this summer it seemed prudent to pare back my holdings and get into a heavy cash position to take advantage of any Y2K mayhem that might ensue. As James Crammer says, "Wrong!" You can imagine my disappointment when the Dow never managed to correct to 9300 in October and the Nasdaq soared like an eagle. I spent November playing catch up and "shifting my mental paradigm" to that of an aggressive momentum player. Note: I've been long on Apple since the September dip. Today, I'm losing my nerve. It's safe to say that no one knows what the effects, if any, of Y2K will be. Investors loathe uncertainty. Gary North is my favorite Y2K fear monger. His elegantly designed web site is packed with information and appears to be the product of a rational mind. May I suggest reading it late at night with the lights down low and eerie music playing in the back ground--such as Dead Can Dance--for some really spooky infotainment. Are the stock markets telling us the Y2K glitch is a dud? Equity price movements in the stock market represent the combined wisdom of literally hundreds of millions of investors worldwide with expertise in every field of human endeavor. Obviously, the amalgamated knowledge of the world's investors is far beyond the scale of what any one person can know. The market consensus seems to be that the Y2K glitch is nothing but another day in the life. Par for the course. After all, Walter Mossberg, the respected Wall Street Journal technology columnist, reports that the average Windows beige box crashes half a dozen times a week. What's so unusual about Y2K? Ever since the first equity markets in ancient Rome, investors have had to deal with "what can go wrong, will go wrong." It's called "discounting." When investors learn some pertinent fact about a company, that information is rapidly assimilated, or discounted, in the price of that company's equity. Investors had all year to discount the fear of Y2K in the stock market. That said... something is rotten about this market. The cash inflows are huge, especially from overseas. That's a good thing, but the money is only flowing into a handful of stocks—mostly telecommunications and Internet stocks—as if the rest of the world's corporations have faulty business models. The advance-decline line continues its sickly ways. Moreover, there are those who say that this most recent leg-up in our lovely bull market is all the doing of the Federal Reserve, which is injecting billions of dollars into the financial system to assure liquidity through the uncertain Y2K period. Here's a blurb cribbed from Pierre Belec of Excite News: "M3, the Fed's broad definition of money, which includes currency, travelers' checks, bank deposits and money market mutual funds, has climbed $194 billion over the past 13 weeks—the biggest increase ever. The money supply increased at an annualized rate of 15 percent, which is well above the Fed's target growth rate of only 5 percent." That seems an odd course of action for the usually conservative Fed. Increasing the M3 has exactly the opposite effect of raising interest rates. Of course, Wall Street wonks have been calling for more liquidity for years now. Such a flood of easy money may be masking the market's true assessment of the Y2K situation by artificially floating stock prices higher. Without the increased liquidity, the market downtrend that started this summer and ended in October might still be with us today. These are the End Times, no doubt. It is, at least, the end of 1999. By the way, the Millennium doesn't officially start till January 1st 2001, so we still have 12 months for the seven signs of the Apocalypse to manifest themselves. I'll keep you updated. Easy come, easy go. Just a short note about Apple's recent volatility: The stock got ahead of itself. It's frustrating to watch your favorite stock give back $15 in three days. Remember, it only took the previous four days to rack up those points. The long term up trendline is still very much intact. This downturn is just par for the course. Apple's stock moves with the news. No news drops you off the radar screen in the gale force winds of this hyper speculative market. If Steve Jobs were to post a news release that says, "I like Linux," Apple's stock would soar 20% in a day. But we really don't want that type of mania associated with Apple, and neither does Apple's management team who have been rather quiet in recent weeks. Perhaps a sign that MACWORLD in San Francisco, January 4-8, 2000 is going to be particularly spectacular. Interestingly, the recent price run-up followed by a Fibonacci-like retracement is a fractal manifestation of the little run up/retracement move Apple did in November when Judge Jackson slammed Microsoft with the findings of fact. Apple appears to be advancing in a series of consolidation patterns in its uptrend, indicating the action of traders who are buying on the dips and selling when Apple diverges vertically from the trend line. There is no technical top in sight yet. Long term investors in Apple can sleep well at night. But not so for traders are going to have to be on their toes to catch the rapid ups and down and not get hopelessly left behind. Your comments are welcomed.