Brigitte
27.12.2000, 11:52
* * * *
12/26/00 Investment House Daily
* * * *
Investment House Daily Subscribers: HAPPY HOLIDAYS!!
TONIGHT:
- Today was a letdown, but don't give up on the Holiday rally just yet.
- Many interesting undercurrents to this market.
- Retails sales improve in the last weekend, but things still slow here
and abroad.
- Subscriber Questions
-
Lukewarm day after Friday's big rally.
JDSU was downgraded right off the bat, and that was one of the unknowns we
identified over the weekend. That set a poor tone for the market overall,
and after an attempt at rallying early in the session, the indexes turned
south. They all, however, touched bottom right after lunch and spent the
rest of the session moving up. Not a furious move up, just a gently rise.
The Dow and S&P 500 hit positive territory, while the Nasdaq shaved 67
points from its low as it spent the last two hours recovering.
The leaders were in the usual defensive sectors: drugs, food, beverage,
energy, and financials; this is the pattern when the techs have one of
their frequent weaker sessions. Still, we don't see today as necessarily
the end of the big move on Friday that had its roots back on Thursday.
Yes it was a letdown to once again see selling so soon, and that is how
all of the two-day rallies have ended this year. But there were some
differences out there today that keep us anticipating a further move up
this week.
JDSU was downgraded, but it turned the day around and rallied at the close
to finish positive on the session. Tech stocks are up after hours, not
racing ahead, but moving higher. The Nasdaq futures are up after hours as
well, about 35 points over fair value. Not strong, but there is upward
momentum. Today was not the rally continuation we were looking for, but
it was far from a wreck, something it could have easily done as it was
down 80 points on its low.
Now the interesting undercurrents.
Sentiment indicators showing that the bears are here.
For several weeks we have been talking with brokers and investors around
the country, indeed, around the world. Almost all we have heard is
negative. Brokers are saying clients are downtrodden, closing positions
and giving up. We see it in the emails we receive. That is why it is so
perplexing to see the reports that bullishness remains high and bears are
few in number. We look at many sources for sentiment indications.
Investor's Business Daily conducts its own surveys, Tobin keeps tract of
bulls and bears, we follow the CBOE and option purchases, and we monitor
other sentiment surveys. IBD's indicators have showed high bullishenss as
have some other surveys. More and more were starting to show some
bearishness over the past month, however.
Over the weekend, IBD seemed to admit there was more bearishness out there
than its own survey of newsletter writers indicated as it cited the
American Association of Individual Investors survey that showed
bearishness at 51%. It cited another poll from Consensus, Inc. that
indicated bulls had dropped to 20%. Those are high and low levels,
respectively. Also over the weekend, Tobin Smith put out the latest
reading from his bear/bull indicator. That indicator shows that bears had
spiked ahead of bulls 1.8 to 1. Tobin's ratio is read much as the
put/call ratio; thus 1.8 to 1 is considered a very extreme reading. In
his release, Smith said "we have never, in 13 years of tracking
bearish/bullish sentiment extremes, had a bearish extreme NOT BE a bottom
of a correction or bear market. NEVER." That is not a huge stretch of
time, but it does take into account the 1987 bear market, the 1991
recession, the 1998 bear market, and several corrections.
So, we decided to take a look at what has been going on. We went and took
a look back at sentiment indicators over the past four months, basically
when the August rally ended. Sentiment declined as the market started
down, but it was not sharp. There were the usual spikes and pullbacks,
but overall it was pretty steady. Then we see the election results and
the turmoil afterwards. Negative sentiment started to rise; we supposed
it was because of economic concerns as the nation struggled over the
leadership over the next four years. There was some more bearish
sentiment after the November 15 FOMC meeting when the Fed did nothing.
But the point at which we see a marked increase in bearishness and a
decline in bullishness is at the December 19 FOMC meeting where no rate
cut came. This shot most of the surveys higher, including Smith's.
Apparently investors, with all of the negative economic news coming out,
feel that there is a very real risk of recession and that the Fed is not
taking the necessary steps to prevent it. Forget the 'soft landing' and
'hard landing' euphemisms. Investors, in the form of the marketplace, see
through sloganeering and cheap talk. When the Fed tried to talk the
market up, it did not work. The change in bias did not work. The small
investor threw in the towel when the Fed did not act.
So who are the bulls? Supposedly the money managers. We have commented
about how they were chasing the hot sector of the day back in the late
summer, running the market up and down on huge volume. They apparently
feel that a rate cut is coming and that gives them hope for the future.
We are not sure if that is the whole problem, however, as there is still
the Dow doing fairly well out there. With one major average holding its
own, the fear has not spiked to all-time highs. But, there is a war of
attrition going on just as it did in September and October of 1999. There
was no sharp selloff with that bottom, just enough investors saying
"enough, I am out of here." We saw that happening when the Fed failed to
act on December 19. There are massive outflows from equity funds (about
$9 billion or better last week) as some proof of that. As we have said,
when the majority of investors throw in the towel, that clears the way for
a market rise. We have seen investors hanging on because 'all the markets
had to do' was get through October earnings; when that did not work, it
was the November election; when that turned into a nightmare, it was help
from the Fed; when the Fed turned a cold shoulder to investors, negative
sentiment jumped. Maybe, just maybe we are near the bottom of sentiment.
We would like to see the put/call ratio spike higher as that has been an
important catalyst in past reversals; coming in over 0.9 today, it is
getting close. We still have a mixed picture from the sentiment
indicators, but there are very real signs that this market is right at
bottom based on investors emotions. The market will tell us the rest when
it makes its move.
Tax selling season: only one more day left.
One of the problems that has roughed up this market is the extreme highs
to lows this year. That has led to the crushing of many tech stocks that
fund managers feel will give them the growth in the coming year. That
creates a dilemma for fund managers: they want to get in early in the
stocks that they feel will do well in 2001, but they also need to attract
investors to their funds, and that means putting out a prospectus that
does not have any of 2000's dogs in it. It is called 'window dressing'
and other things, but the idea is to weed out the losers and fill in with
winners so when the year end holdings are printed, it looks like roses.
With the three days it takes for a stock trade to clear, most fund
managers either have already completed tax selling or are going to do so
tomorrow. At that point, the 'January effect' usually starts; they call
it the December rally, but it is an early start to January where new money
is put into the market and mutual funds start looking for the winners for
the next twelve months. Those include smal
12/26/00 Investment House Daily
* * * *
Investment House Daily Subscribers: HAPPY HOLIDAYS!!
TONIGHT:
- Today was a letdown, but don't give up on the Holiday rally just yet.
- Many interesting undercurrents to this market.
- Retails sales improve in the last weekend, but things still slow here
and abroad.
- Subscriber Questions
-
Lukewarm day after Friday's big rally.
JDSU was downgraded right off the bat, and that was one of the unknowns we
identified over the weekend. That set a poor tone for the market overall,
and after an attempt at rallying early in the session, the indexes turned
south. They all, however, touched bottom right after lunch and spent the
rest of the session moving up. Not a furious move up, just a gently rise.
The Dow and S&P 500 hit positive territory, while the Nasdaq shaved 67
points from its low as it spent the last two hours recovering.
The leaders were in the usual defensive sectors: drugs, food, beverage,
energy, and financials; this is the pattern when the techs have one of
their frequent weaker sessions. Still, we don't see today as necessarily
the end of the big move on Friday that had its roots back on Thursday.
Yes it was a letdown to once again see selling so soon, and that is how
all of the two-day rallies have ended this year. But there were some
differences out there today that keep us anticipating a further move up
this week.
JDSU was downgraded, but it turned the day around and rallied at the close
to finish positive on the session. Tech stocks are up after hours, not
racing ahead, but moving higher. The Nasdaq futures are up after hours as
well, about 35 points over fair value. Not strong, but there is upward
momentum. Today was not the rally continuation we were looking for, but
it was far from a wreck, something it could have easily done as it was
down 80 points on its low.
Now the interesting undercurrents.
Sentiment indicators showing that the bears are here.
For several weeks we have been talking with brokers and investors around
the country, indeed, around the world. Almost all we have heard is
negative. Brokers are saying clients are downtrodden, closing positions
and giving up. We see it in the emails we receive. That is why it is so
perplexing to see the reports that bullishness remains high and bears are
few in number. We look at many sources for sentiment indications.
Investor's Business Daily conducts its own surveys, Tobin keeps tract of
bulls and bears, we follow the CBOE and option purchases, and we monitor
other sentiment surveys. IBD's indicators have showed high bullishenss as
have some other surveys. More and more were starting to show some
bearishness over the past month, however.
Over the weekend, IBD seemed to admit there was more bearishness out there
than its own survey of newsletter writers indicated as it cited the
American Association of Individual Investors survey that showed
bearishness at 51%. It cited another poll from Consensus, Inc. that
indicated bulls had dropped to 20%. Those are high and low levels,
respectively. Also over the weekend, Tobin Smith put out the latest
reading from his bear/bull indicator. That indicator shows that bears had
spiked ahead of bulls 1.8 to 1. Tobin's ratio is read much as the
put/call ratio; thus 1.8 to 1 is considered a very extreme reading. In
his release, Smith said "we have never, in 13 years of tracking
bearish/bullish sentiment extremes, had a bearish extreme NOT BE a bottom
of a correction or bear market. NEVER." That is not a huge stretch of
time, but it does take into account the 1987 bear market, the 1991
recession, the 1998 bear market, and several corrections.
So, we decided to take a look at what has been going on. We went and took
a look back at sentiment indicators over the past four months, basically
when the August rally ended. Sentiment declined as the market started
down, but it was not sharp. There were the usual spikes and pullbacks,
but overall it was pretty steady. Then we see the election results and
the turmoil afterwards. Negative sentiment started to rise; we supposed
it was because of economic concerns as the nation struggled over the
leadership over the next four years. There was some more bearish
sentiment after the November 15 FOMC meeting when the Fed did nothing.
But the point at which we see a marked increase in bearishness and a
decline in bullishness is at the December 19 FOMC meeting where no rate
cut came. This shot most of the surveys higher, including Smith's.
Apparently investors, with all of the negative economic news coming out,
feel that there is a very real risk of recession and that the Fed is not
taking the necessary steps to prevent it. Forget the 'soft landing' and
'hard landing' euphemisms. Investors, in the form of the marketplace, see
through sloganeering and cheap talk. When the Fed tried to talk the
market up, it did not work. The change in bias did not work. The small
investor threw in the towel when the Fed did not act.
So who are the bulls? Supposedly the money managers. We have commented
about how they were chasing the hot sector of the day back in the late
summer, running the market up and down on huge volume. They apparently
feel that a rate cut is coming and that gives them hope for the future.
We are not sure if that is the whole problem, however, as there is still
the Dow doing fairly well out there. With one major average holding its
own, the fear has not spiked to all-time highs. But, there is a war of
attrition going on just as it did in September and October of 1999. There
was no sharp selloff with that bottom, just enough investors saying
"enough, I am out of here." We saw that happening when the Fed failed to
act on December 19. There are massive outflows from equity funds (about
$9 billion or better last week) as some proof of that. As we have said,
when the majority of investors throw in the towel, that clears the way for
a market rise. We have seen investors hanging on because 'all the markets
had to do' was get through October earnings; when that did not work, it
was the November election; when that turned into a nightmare, it was help
from the Fed; when the Fed turned a cold shoulder to investors, negative
sentiment jumped. Maybe, just maybe we are near the bottom of sentiment.
We would like to see the put/call ratio spike higher as that has been an
important catalyst in past reversals; coming in over 0.9 today, it is
getting close. We still have a mixed picture from the sentiment
indicators, but there are very real signs that this market is right at
bottom based on investors emotions. The market will tell us the rest when
it makes its move.
Tax selling season: only one more day left.
One of the problems that has roughed up this market is the extreme highs
to lows this year. That has led to the crushing of many tech stocks that
fund managers feel will give them the growth in the coming year. That
creates a dilemma for fund managers: they want to get in early in the
stocks that they feel will do well in 2001, but they also need to attract
investors to their funds, and that means putting out a prospectus that
does not have any of 2000's dogs in it. It is called 'window dressing'
and other things, but the idea is to weed out the losers and fill in with
winners so when the year end holdings are printed, it looks like roses.
With the three days it takes for a stock trade to clear, most fund
managers either have already completed tax selling or are going to do so
tomorrow. At that point, the 'January effect' usually starts; they call
it the December rally, but it is an early start to January where new money
is put into the market and mutual funds start looking for the winners for
the next twelve months. Those include smal