Heinz:
In response to your questions,
>>what makes you think that the bear market as evidenced by the a/d line is going to end "any day now" as you put it? what exactly will end it? the a/d line looks oversold, but it looked oversold last week, last month and three months ago.<<
1) I believe that what all of the analysts see as two separate issues (the negative A/D line and the narrowing leadership by an increasingly smaller number of big cap tech stocks) are one and the same phenomenon. As more and more stocks enter into a bear market (whether or not we use that terminology), that leaves the "long money" going into fewer and fewer, large cap, seemingly safer, and still advancing issues. Eventually even those stocks get so far ahead of themselves that the slightest hint of a problem sends them falling by 20-25% (as witnessed yesterday by IBM and today by a rumor in CSCO where it sold off 5% in less than an hour for no reason).
2) The broader market has been in a down trend for anywhere from 5 to 20 months (depending on how you define "broad"). Small caps have not recovered from the slide which started in April 98. As the list of "safer" large caps gets smaller and smaller, the money has to start going into the "beaten down" out of favor stocks. I see the beginnings of that happening already.
3) Look at this chart of the EMA of the A/D line (1% smoothed):
decisionpoint.com
I would prefer to make my own chart, but for some reason I can't find the symbol for the advance-decline line (I thought it was ADX??) for Q-charts. I would like to do a 10 day EMA on the A/D line. I would wager that it has bottomed and is in an uptrend (although still negative). Regardless, as the narrow leadership continues to further narrow, and bonds are not really an alternative (in the minds of growth oriented baby boomers), the money begins to find it's way into the broader market. I contend that the vast majority of stocks have already "corrected" and are showing signs of strength and as the big caps drop one by one (CPQ, AAPL, INTC, DELL, IBM, and CSCO almost), the dollars are finding their way, albeit tentatively, into the value stocks again. We've seen it already in the oils, we're seeing hints of it in the financials, biotechs and drugs, and some of the transports look like they may have bottomed as well.
I believe that I began to look at this market in a different light about a month ago when I read the article which cited the numbers and suggested that we may have already been in a "stealth" bear market for 19 months but that the indices didn't reflect it because of the market cap weighting of those indices and the flight to perceived quality of the large caps which continued to rise. I really believe that this is precisely what has happened, and the management by the Fed, the unbelievable number of IPO's, and the "sector rotation" phenomenon has taken the extreme "blow off" bottom out of the immediate picture.
Finally, do I believe that parts of this market are extremely over priced? Of course. However, I also believe that there are some great buys out there as well. I would go so far as to say that with the exception of the "glamour" stocks or the "nifty fifty" (which is becoming more like the "nifty ten") most of the market is not over priced for a market that is as fully funded as this market. Even with the never ending stream of IPO's to soak up huge pools of money (at least short term) the sheer liquidity coming into this market makes it an expensive market (comparatively speaking). I hope that I have clearly stated my case and that in the midst of my rambling I managed to communicate my understanding of this extremely frustrating market.
Matt |
