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"Tear down this wall!" and the Reagan rally....

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On June 12, 1987, standing before the people of West Berlin, the late President Ronald Reagan delivered what some historians say may have been his most powerful speech, when he called upon Russia's General Secretary Gorbachev to "tear down this wall!"

It was an emotional day on Wall Street, where traders and investors around the world observed a moment of silence after the opening bell to honor former President Ronald Reagan.

Often referred to as the "great communicator," it didn't take long for bulls to get out their sledgehammers, and tear down some walls of their own.

Tonight, I'm going to touch upon some points from the Reagan era, where after listening and reading about some of the things that took place during his two-term presidency from 1981-1988, and events that followed, investors dug in with a realization that things might not be all that different today, than when President Reagan was readying to run for a second-term.

S&P 500 Index (SPX.X) Chart - Daily Intervals

In this morning's 11:00 AM EDT update we looked at the SPX as it had just cleared its WEEKLY R1 of 1,130 and downward trend. I would argue that today's broad sector gains were largely driven by what would be characterized as a patriotic rally, where investors and traders reflected on the state of the current economy, current geopolitical events today, compared them with similar, but not nearly as troubled times as found in the late 1980's, and sent stocks higher.

A copy of President Reagan's "Tear Down This Wall" speech.

I took some time this afternoon to read the above speech. It is said that we can learn from history. I'm old enough to remember the 1980's and after reading above speech, current times seem rather similar. Can history repeat?

U.S. Market Watch - 06/07/04 Close

Was it President Reagan's rather optimistic outlook on life, or his ideals that impacted today's trade? I say YES! I don't think it was MGM Mirage's (NYSE:MGG) $44.84 -2.58% bid for Mandalay Resort (NYSE:MGB) $70.23 +16.52%, or Wal-Mart (NYSE:WMT) $57.50 +1.6% saying June same-store sales were tracking at the low end of growth targets that would have triggered today's round of bullish enthusiasm. It certainly couldn't have been Al- Qaeda's repeated threats of terrorism.

In the final 75-minutes of trade, the Biotechnology Index (BTK.X) 512.13 -0.03%, which had traded fresh session lows, rallied late as bulls bid the bulk of sectors to their session highs by the close.

Market Snapshot / Internals - 06/07/04 Close

The major indices did "stall" from 12:00 to 01:00 PM EDT. Either traders took a break for lunch, or the Reuters report just prior to 12:00 that Al-Qaeda was warning about coming attacks to the western U.S. and upon American (as in United States) airline flights gave reason to pause. Both the Tick and TRIN look very "overgought" near-term, but certainly depict a bullish bias toward today's close.

While A/D lines at both the NYSE and NASDAQ were decidedly bullish, the expansion of new 52-week highs versus new 52-week lows at both exchanges continues to build, with strong bullish leadership present.

NYSE Composite ($NYA.X) Chart - Daily Intervals

I've placed a conventional retracement bracket on the NYSE Composite ($NYA.X) chart from the 52-week high close of 6,780 to the most recent relative low close of 6,231, where each break higher and close above a level has refused to fall back below the level just broken. 6,570 becomes the short-term level of support, but as the 50-day SMA begins to round higher, 6,505, downward trend, and 50% retracement have a more formidable look as support.

NASDAQ Composite (COMPX) Chart - Daily Intervals

A quick WEEKLY Interval review of the NASDAQ Composite (COMPX) 2,020.62 +2.12% (from May 26 Index Trader Wrap), which broke above the psychological/technical 2,000 resistance today, and now challenges its downward trend. Not nearly the bold break above trend as seen in the NYSE Composite ($NYA.X) or the S&P 500 Index (SPX.X), but the Berlin Wall didn't fall the day after President Reagan's speech to West Berliners.

On November 9, 1989, the border separating Western from Eastern Germany was effectively opened and is used by historians to symbolize the end of the Cold War.

I must say, that when I was watching this weekend's historical review of the Reagan presidency, I would have viewed current times, though difficult, not nearly as tense as those found in the 1980's, when the world seemed to be on the brink of nuclear destruction.

Some will say that President Bush is currently shaping world history in Iraq, perhaps the Middle East.

S&P 100 Index Chart - Daily Intervals

Similar to the SPX, the OEX broke and closed above its downward trend, aided in part by the S&P Banks Index (BIX.X) 350.83 +1.31%.

S&P Banks Index (BIX.X) - Daily Intervals

Today's gains for the S&P Banks Index (BIX.X) is vastly different than what we've seen after the past two nonfarm payroll reports, where the BIX.X extended losses after both of those reports, as Treasury YIELDs moved sharply higher on fears the Fed was going to have to establish an AGGRESSIVE tightening mode, which would send the economy back into recession.

When President Reagan implemented his strategy of tax cuts and increased military spending, thus the highly criticized ballooning deficit, the prime rate of interest stood at 14% in 1982, down from its record high of 21.5% as the Federal Reserve made it easier to borrow money. The unemployment rate stood at 10.1%, the highest since 1942. By 1984, the unemployment rate had fallen to 7.1%, as did interest rates.

Some key points/events during the Reagan era at this link.

Pivot Analysis Matrix -

SPX/SPY/OEX all saw closing trade at their MONTHLY R1s, where it would be confirming bullishness from the INDU above correlative DAILY R1 (10,423) and MONTHLY R1 (10,432) that would lend itself to further gains.

With NDX/QQQ/SOX moving ABOVE their WEEKLY Pivots, I would have to think first sign of ANY weakness would come below today's lows.

Jeff Bailey

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