Latest from Don Hayes:
MORNING MARKET COMMENTS
by
Don Hays
January 14, 2000
This January is not despoiling its reputation as creating all
kinds of
cross currents in the market. As noted in our Wednesday missive, the
action
in the market looked ripe for bursting the bubble in its turnaround on
Tuesday. It seemed to be setting up for a sharp decline, waiting on a
catalyst. Was it going to be a negative PPI, or weak Intel earnings, or a
Greenspan blockbuster? But none of those occurred, actually just the
opposite, so the market is back to the same old grind. When you look at
100's of charts you see that despite all these huge crosscurrents for the
last 21 months (since April 1998) the bulk of the stocks have been in a
sideways pattern. We believe the median portfolio in the public's hands
has
been virtually flat since that April 1998 top, as shown by the
arithmetically averaged Value-Line index. That index is only 2.5% above
those levels.
Even as I look through the entire chart book, it is hard to
explain why
with all this good news that most stocks have performed so badly over the
last two years. Spend a few minutes in this exercise yourself, and you
will
have a hard time seeing the bull-market the headlines are screaming about.
But there certainly is another side to the story, and that is in some of
the
technology and biogenetic arena.
These stories are shown in the NASDAQ bubble that is spurting
asymptotically. It now has a price/earnings ratio close to 200. That is
something else, that no one can explain based upon any historical example.
And the public investor obviously loves it. The bullish sentiment as
registered by American Association of Individual Investors just soared to
75%, with only 13% bearish. This is so far above the normal high water
mark
of 60-62% that it is mind-boggling. The beginning year optimism is
boiling.
Our expectations have been comparing this January to the one in
1973 that
came on the heels of a 1971-72 that pushed a small band of large-cap,
big-name "perpetual" one-decision growth stocks to astronomical valuation
levels. We still believe a similar state awaits this market. The Smart
Money Index that I mentioned in Wednesday's comments continues to tell us
something about this nature of this bull market. That index subtracts the
action of the first 30 minutes of every day, and adds the performance
gains
made in the last one hour. Signals are given by massive non-confirmations
between its chart and the Dow Industrials, et. al. The logic of the index
is that its author believes that emotional buying occurs by those
uninformed
that get hyped up by morning news or comments, and the calm professional
buying occurs later in the day taking advantage of those uninformed
buyers.
So it subtracts the emotional buying, adds the smart buying and keeps a
cumulative total. This index gave tremendous warning in 1987, 1990, and
1998. Today it is crashing once again, in direct non-confirmation to the
action of the large-cap dominated indices.
Wally Hert, who brought this Smart Money Index to my attention
notes that
the 1998 plunge began 81 days prior to the July NYSE top. In this year's
signal, the plunge in the SMI began on October 27, 1999. If the January
3,
2000 period was the top in the NASDAQ the days lapsed would be 68. The
exact equivalent to that 1998 example would bring a top on January 17,
2000.
Even though these past examples give some clue, they almost never exactly
duplicate previous time scales. But the bottom line is that as all the
news
is PERFECT, and investor sentiment is soaring, it is very difficult to be
negative.
It can't get much better than this. That is what tops are made
of. |
