From Comstock
Conditions Not Ripe For A Bottom
Focus Shifting To Monetary Policy
A selling climax and significant bottom is unlikely as long as investors
remain as unconcerned and optimistic as they seem to be. A climax is
typified by an extremely sharp downturn accompanied by huge volume,
fear, panic, pessimism and the withdrawal of large sums of cash from the
market. At that point the most fearful holders have abandoned the market
and a large amount of cash is on the sidelines, on hand for the next
upturn. This is not the case at present. The over-all volume at the recent
low was not appreciably above this year?s average. In addition Trim-Tabs
estimates an inflow of $28 billion into stock mutual funds in April of which $16 billion went into aggressive
growth funds. There was not a single day during the downturn where put volume exceeded call volume,
and the put-call ratio has again dropped to under 0.5 over the last few days. The latest readings still show
investment advisors 51% bullish and only 29% bearish. This is not the kind of backdrop generally seen at
important market bottoms
The tech rally this week is being fueled largely by excellent earnings reports, but after today 85% of
companies will have reported, and the favorable impact will be almost over. The next focus will be on the
Fed?s May 16th meeting, and all of the reports showing an overheating economy, higher inflation and
rising labor costs point toward more aggressive tightening. Furthermore, according to Ed Hyman of ISI,
there have already been 81 worldwide tightening moves by central banks over the last 10 months, 14 of
them in April. The worldwide equity surge followed more than 150 global monetary easings, and that is
now being reversed. |
