Bulls Put Down The Party Horns For An Emergency Meeting
By Goran Yordanoff
TradingMarkets.com
April 10, 2001 7:00 PM EST
Let's see...Motorola came out (way) after the bell today to announce to remind the world that perhaps the rumors of the
Bear's demise were greatly exaggerated. Should we consider statements from Motorola such as "The U.S. downturn is
spreading to the rest of the world" important? Or should we buy stocks because Mr. Alger on CNBC (who lost roughly
49% of his clients' money last year) told us that we have had a bottom? Should we be concerned by the fact that
Motorola's orders were down 10% this quarter, personal communication sales down 29%, semiconductor orders fell
47% and the fact that their operating net margins on sales are at -16%? That means it is difficult for them to actually
make money because they lose 16% on everything they sell. Maybe the key to this "new math" is volume. No, wait, we
saw that before with the Internet stocks and it didn't work that time.
Even Motorola, that today reported its first quarterly loss in 16 years, couldn't pull this one out of the fire in the face of an
increasingly deteriorating semiconductor business cycle. Nonetheless, we should remain confident that the bullish
analysts who dominate our senses are correct in their forecast of a market bottom at these levels and a turn-up in global
demand and the related business cycle later this year. Yeah, right. What these analysts don't tell us is that this cycle may
last from 2-3 years.
Interestingly, we witnessed nothing short of "panic buying" today as stocks were the place you had to be. Early this
morning, CIBC World Markets raised their equity allocation in their model portfolio to 75% from 55% and helped fan the
flames to the "train is leaving the station" hysteria. In my commentary of April 5, I stated "I have a feeling that this rally
may last into the end of the week and perhaps into early next week." Well, the Bulls sure did have their fun and reminded
us that they haven't "lost their lovin' feeling" for mindlessly chasing and bidding up stocks on no fundamental or factual
merit. This, my friends, is how opportunity is created. As long as we keep getting these sharp bear market rallies in
which stocks appreciate 50+% in just a few sessions, we will keep making insane profits shorting these stocks each
time the music stops and people run in search of chairs. With 90 minutes remaining in today's trading session, you
could clearly see the distribution that was taking place by the commercials as retail speculators hungrily gobbled up
offers on any slight weakness. The professionals do such a fine job of creating an unquenchable thirst to buy in the retail
crowd that had to watch prices rise steadily and relentlessly the entire session. That is why they are professionals and
have homes in the Hamptons.
Looking to the index voted "most likely to catch a Nancy Kerrigan crack on the knees over the next 12 months", the Dow
Jones Industrials.
Not much to say here other than we have had a rally from an extremely oversold technical level in which we are not
nearing significant resistance. It is difficult to ascertain how the DJI will not retest its 9100 lows if not exceed them. We
have obviously not experienced a "throwing in the towel" type of scenario in which all stocks and sectors are sold
indiscriminately. Perhaps such a scenario will clear the slate for a 2-3 month uptrend through the summer months.
What is the Volatility Index telling us?
As the chart shows, the VIX is clearly in an uptrending channel and has pulled back to an area of regression line
support. The brief time it spend below 33 today should probably be the lowest levels it sees in the near future. As such,
it looks poised to spring back to the upside and resume its pattern of higher highs.
Long/Short Watch: Motorola news should result in early weakness in the handset manufacturers as well as the SOX
index. With today's broad rally, look for stocks which are in downtrends and have rallied back up to resistance
levels/areas. There are literally dozens of them, so do your homework. How the market will interpret and react to
Motorola's train wreck of a quarter remains to be seen. |
