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Strategies & Market Trends : Ask DrBob
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To: CookiePuss who wrote (41564)7/29/2001 11:31:33 AM
From: highyarolla  Read Replies (1) of 100058
 
Good Point CookiePuss

I only listed the bullishness percentages but not the bearish percentages. Didn't know the AAII bearishness numbers were so low. That seems to further support that in order to get a sustainable intermediate-term rally, we need another "nudge" down to lower lows to scare more people.

You hit the nail right on the head with the sentiment among fund managers. Investors Intelligence doesn't measure the little guy. The average mutual fund manager appears to be much more optimistic than the average small investor. This isn't just a fluke; the divergence has existed for the last 2-3 months.

The reason is likely that fund managers tend to look at old-economy stocks as a true barometer of market health. With their MBA backgrounds, they are trained to look for value, earnings, market breadth, etc. They see the Nasdaq smash as orderly and "morally correct" that the high PE stocks finally got it. They are a very rational, analytical lot. Now that value is up and growth is down, to them the order of the stock market is "restored" and that is "healthy" for the long-term. Unfortunately, too much of this complacency from rationality returning to the fore means less panic and no bottom yet.

Individual investors are focused much more on tech stocks. This is evident from all the radio stock question call-ins. You almost never hear a caller ask about an old-economy stock.

I have long believed that in April we had capitulation from the individual investors but not the fund managers who are centered in the old economy issues. Looking at the cyclicals and defensive issues' performance in the first-second quarters bears this out.

Perhaps in order to see a true bottom long-term we have to have broad-based capitulation whereby both the cyclicals and growth stocks get slaughtered at the same time. That shows money managers are so scared they are selling outright rather rather than merely rotating money to safety issues. In major bottoms, rotation is non-existent and there are no safe havens anymore.

There is no question we are ways away from "the" bottom. Gut says the ultimate bottom will happen in Q3 of 2002. But bear markets never go straight down. In 1929-1932 there were 4-5 false rallies that were brutal for shorts. Yet all of those rallies started from minor levels of despair not unlike present levels.
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