LG, happy anniversary! congratulations on an absolutely great thread...
most sentiment measures (p/c ratios, polls) are at seldom before seen extremes. the lone exception is the OEX p/c ratio, which looks bullish. however, the dollar trading volume in OEX options continues to wither, making that indicator a mite less useful than in the past.
positive seasonal factors may help to overrule this deterioration somewhat, but usually one can at the very least expect the upside potential for the overall market to be limited. another point worth noting, is that today is projected to be a cycle turning point. originally it was supposed to be a low, which suggests a cycle inversion is taking place. if so, the market may well begin to reflect the deterioration in the internals soon by going down...
of course the gray eminence behind the rally, namely the Fed, may well continue to keep the market afloat by supplying liquidity. imo, this is largely a move motivated by the desire to blame an eventual decline on Y2K if possible. i continue to see the Fed as being trapped by the bubble of it's own making and trying to do whatever it can to keep it going as long as possible. an outside event like Y2K may be used to extricate the Fed from the responsibility. we have to remember that the Fed came close to losing it's powers in the wake of the '29 disaster and is therefore probably afraid of being in the line of fire should the beloved bubble break.
another point that is worthy of consideration is the fact that the poor internals, having had no effect on the indices for a very long time now, are beginning to be discounted as useless by many analysts (the evidence to that effect is largely anecdotal). we shouldn't lose sight of the fact however, that the only two periods this century that were marked by similarly durable and extreme divergences between the indices and market internals immediately preceded the two biggest bear markets of this century. it is therefore a reasonable assumption that the market is in the process of closing in on a period of poor performance. however, this is not something useful for timing, but long term investors should probably begin to pull in their horns a bit...
regards,
hb |
