Great post..Tim.. The best way to know if we may be on the right track is to look back at our recent past..
Last night I was reading about these discounted cash flow problems in rising interest rates environment, I had a deep smile as I thought we did attend that and I think that market loking at that now is little too late the time to sell was in Mrach not to let Comp climb up to 5000 plus , now by selling steeply and SOX PSE giving a low price gapping bearish play signal as they race to kiss 200 days MA, we may see hughe selling but opprtunity would be created
at some time for us to enter.. this was in Feb when Comp was bid and DOW and Bkx were cracked..some of these stocks did not do well others raced up but overall the prediction on Comp DOW divergence did come out on the dot.. the mix of exposure did help in htis cliamte..
<<Sunday, Feb 27, 2000 5:18 AM ET
Reply # of 31536
This divergence can continue my target on Comp is still good two hundred points away, we can see that if 9800 does not hold we can test 9200 on DOW that would be the low and if Comp is around 4800-5000 at that point we may see that the twains shall meet if Comp retraces by 10% and DOW improves by 10% as market discounts two interest rates hike, all this is healthy overall as chances of a big drop are discounted..
Market at 9500 area will discount atleast .5% rise in rates but in my opinion the relationship between economic strength and monetary policy is not that meaningful may be some fiscal measures may be required to cool down the asset inflation, we are more threatened with the asset inflation than the commodity inflation, don't forget that Richardson trip to SA will bring some tangible drop in Oil prices, no one wants it at these levels, so CRB index may cool a bit, but AG is more worried about consumer spending and low un-employment, the shrinking of the labour pool is worrisome and he wants to contain the damage, if things go out of hand in my opinion he has always a pro-active stance and this is no change from the past, good to see nice pairs of hand on the stern but his ability to target the spending and slow down the economy is suspect, anyway it is not the industrial sector that is warming up the economy, capacity utilisation and industrial porduction figures will show you that they are not hitting new highs as has been the case in previous over heating instances...( may be Lee can provide us with some p[icturs on this evidence if my assumption is factual)..
When the economy is driven by AMAT's and CSCO's billion's of $'s of orders where employment matters little or commodity has little role, the fall out and wealth effect is diffuclt to contain with the tools of monetary policy, the tech based revolution has generated new kind of wealth some hype some real but it would take some time to stabilise and new relationships and definitions of vlauations may work their way up through the complex models, until such time we will see two extremes , one is the extreme in valuation of Techs other extreme in sell off of the meembers of the old economy..
Now if you look at this NDX DOW divergence or Comp DOW divergence what it is telling you is that market is paying a huge premium for anticipated strength in future and discounting traditional sectors but a balance would reach, may be internets at 450 in last July were a steal but at 1500 they may be a sell and DOW at 9200 may be a steal and at 12000 a sell, for me these extremes need to be traded with extreme openess of mind and approach and that is what I am doing right now, KCOM entry into UK FTse on Thursday was exploited and so was ORCL weakness, and so would be MSFT 200 days MA flirting. 14 out of 17 times it has bounced off this level or within 5% of its 200 days MA.. Now Kelly is right, very early on as we were hot on IBM Kelly joined my optimism and we did well, for me I would like a mix of IBM's INTC TXN's MSFT'S and MER GS WFC JPM ...
on the other I would look at ELON PCLN VRIO pSIX.. BEAS.. my favourites and FDX UPS .. on beaten down LU BMCS I call it Mr Fix it for hackers threat great stock,, Brka and Brkb purely for big exposure to tradition.. and expertise of the old man for free... now this is my definition... how I play this market.. slowly but surely.. a mix of every flavour. sweet and spicy... |
