Jim, the market continues to look very oversold by almost all technical measures and we have to be prepared for a bigger bounce anytime. looking at the a/d line, NH/NL, put/call ratios, McClellan oscillator, all are testament to oversold conditions.today's break of support and subsequent reversal looked a lot like an exhaustion move to me, which would also support the 'bounce-hard-and-soon' theory. the recent moves in the nutz also have all the hallmarks of a bottoming phase.
BUT: the whole decline so far has been lacking in two important respects: volume and fear, neither of which ever went to noticeable levels. as far as i can see, every excuse, however slim, is used to buy the dip. today the remarks of Fed governor Gramlich set the train in motion, he said something about being unconcerned over the inflationary implications of the tight labor market.
there are some markets though which are seemingly a lot less sanguine about all this, namely the bond market and the swap markets, which see credit spreads expanding to levels last seen in the mid-eighties.
all sorts of rationalizations are bandied about regarding the widening of the spreads, mostly to do with the heavy corporate calendar due to Y2K. however, when spreads are widening, someone is losing money. in view of the rapidity with which spreads, gold lease rates and the Yen all went up in recent weeks, i bet quite a few hedge funds and investment banks are losing a lot of money right now. as long as this situation persists, risk in the stock market remains extremely high, technical bounces notwithstanding. all the players in the derivatives markets are long a ton of stocks as well and may well look to preserve their ytd profits if we get a bounce.
so i agree with you - we have most likely not seen the bottom yet.
regards,
hb |
