Worth a read.......
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June 27, 2000 -- Things change. A year ago the following four Internet stocks were considered the
blue chips of the net, the stocks you could buy and put away for the kids. They were AOL, AMZN,
YHOO and CMGI. I added together the peak prices for the four, and it came to 621. At latest count
the current price of the four adds up to 249. That's a decline of 59% from the highs. What, you
want to add E-bay? OK, E-Bay was 127 in late-March. Today you can buy it for a new low of 52
¬. That's a decline of 59% as well. Reality has come to the Internet, and it's still coming.
What am I trying to prove? I'm trying to prove that it's tough to make money in a bear market, even
when you buy the most glamorous stocks in the hottest group. Of course, buying the most popular
stocks in the hottest and most hyped groups is always a study of the "greater fool" thesis. And if you
buy the hot stocks and the hot group and then you run out of greater fools, well horror of horrors,
you wake up to find that it's YOU who are the greater fool.
Of course, the real problem with trying to make money in this market comes down to one thing -
extreme overvaluation. Right now the S&P is selling at 28 times record earnings. In 1929 and in
1969 and 1987 the market topped out at 20 times record S&P earnings, and now you're buying
stocks with the S&P at 28 times record earnings. Buying stocks as investments (I'm not talking
about in-and-out trading) and holding them in this kind of overvalued environment is a very iffy
proposition. It's a situation that seasoned investors will avoid.
Remember, over the short term the market can do anything. But over the long term, values rule.
Which is the problem with buying stocks as investments today.
Right now we're seeing a series that I've seldom seen before. I'm referring to an extraordinary series
of Dow rallies. The Dow is now embarking on its seventh rally Since January, but so far each of
these rallies has ended below the peak of the preceding. Here's the amazing series brought up to
date.
January 14 -- the Dow rallies to a record high of 11722.98. A decline follows.
April 14 -- the Dow rallies to 11287. A decline follows.
April 25 -- the Dow rallies to 11124. A decline follows.
May 16 -- the Dow rallies to 10934. A decline follows.
June 5 -- the Dow rallies to 10815. A decline follows.
June 15 -- the Dow rallies to 10714. A decline follows.
June 26 (yesterday) -- the Dow rallies to 10542.99. (the Dow was down today).
I want, once again, to draw attention to what I consider the bellwether stock of the market, and I'm
referring to mighty GE. GE hit a high of 55 5/8 on April 5. Since then it has embarked on four
rallies, each one ending below the previous. The most recent rally took GE to just above the 50 area.
Today GE closed at
Two things are now clear. (1) GE looks like it recorded it's record high on April 5, and since then the
stock has been weakening. (2) An extremely important level for GE is 48. If GE breaks below 48, it
could easily sink to the mid-40s and below, and that would be a very definite negative for the
market. So watch GE.
The Utility Average has often (but not always) been a market bellwether. The utilities used to be
(and probably still are) considered investment vehicles, and the Utility Average was known as the
"investment average." Of course, deregulation has arrived and that may have changed things -- but
ostensibly for the better.
For whatever reason, the Utility Average has formed a very large "head-and-shoulders" top
formation with the support or "neckline" at 315. I find this ominous (and remember, I've liked the
utilities). I don't think it can just be high fuel prices, and frankly, I don't know what's bothering the
Utility Average -- but the action of the Average is bothering me.
Today the Utility Average broke down badly, broke below its support at 315. Not good at all.
I note that a lot of very good, serious advisories are saying that the market is oversold, and that
stocks are now positioned for the summer rally. Could be, but I want to remind people that bear
markets don't work like bull markets. Often, a bear market will appear to be ready to rally, stocks
will appear to be "sold out," and what happens -- the market falls out of bed. I've been warning for a
while that bear markets can be over-sold and then remain over-sold for months on end. Bull market
technicals just don't work in bear markets. And it's well to remember that.
The fact is that the market is oversold, and I noted yesterday that Lowry's OPO (operating
companies only) broke to a new bear market low on Friday. But in a bear market, following an
oversold condition, the market can "work off" the oversold by rallying weakly and moving sideways
- this preparatory to the next move down. Let me put it this way - if the market can't rally
convincingly between now and mid-July - watch out.
Today's Action: The Dow after being up most of the session, closed down 24.04 to 10518,95. IBM
down 4 « on Merrill Lynch worries and HWP down 3 «.
The Transports were up 67.32 to 2681.87.
The Utilities got whacked today, down 9.97 to 313.02.
There were 1632 advances on the NYSE and 1296 declines. I added .10 to the A-D ratio, taking it
to minus 6.77.
There were 70 new highs and 59 new lows.
Volume on the NYSE was 1.02 billion shares.
The S&P was down 2.67 to 1452.64.
The Nasdaq was down 32.65 to 3879.47.
My Big Money Breadth Index was down a surprising 8 to 980.
The 30-year T-bond was up 20 ticks to yield 5.94%. The 10-year T-note was up 3 ticks to yield
6.09%.
You want excitement? Here it is: August gold up two bucks to 287.60. But July silver down .27 to
4.95. July platinum down 8.90 to 556.80. Sept. palladium down 12.85 to 654.15. XAU up .70 to
57.16. NEM up « to 21 ó. ABX up ¬ to just over 17. SWC (finally) up 1 5/8 to 26. Aw, I was
only kidding about the excitement. Time for my old poem: "Gold, gold, you're making me old."
I still can't get over a new "gold" dollar coin. Is anyone going to use this mongrel? Is the Treasury
brain-dead? The only thing I wish is instead of insulting the Indians by putting one of their own on
this coin, they had put a bust of Clinton on instead. What could they have Clinton doing? Easy, he
could be raising soft dollars for the party (oops, I forgot, only dead presidents go on US money.
)Then how about Martin Van Buren?
A few subscribers told me not to waste my time and energy on stock quotes because "we can read
'em in the paper." Makes sense, and it does take a lot of energy. I'll just mention outstanding stocks
from now on.
I guess today's feature was IBM, which has been raising share earnings by buying back its stock.
Actually, there's some concern about revenues for IBM. At any rate, it was down 4 21/32 to 109 ó.
Quite a few techs got hit today, RMBS down 8 ó and SUNW down 3.
In the nets, the features were YHOO up 6 5/8 and JDSU down 6 5/87. AOL hanging on, up 3/16 at
51 31/32.
Retailers, after being beaten down during April and May, did better today. TIF up over 3, WMT up
over 3, HD up 2 ó and GPS up 2 1/8. Thank God, they're saved -- I was afraid wife Faye would
have to stop buying.
Conclusion: All in all, there really wasn't much action today, the excuse being that "everyone is
waiting to see what the Fed will do tomorrow." Although it's a foregone conclusion that the Fed will
sit on its hands. A poll of a dozen pro bond traders was unanimous that the Fed would do nothing.
So any Fed boost would be something between a surprise and a shocker. It looks to me as though
we're not going to be shocked tomorrow.
My PTI was unchanged today at 5120 and the moving average was at 5141.
Below, a few comments about the PTI.
My PTI turned bearish on July 29, 1999. That means that the PTI has held steadily below its
89-day moving average for eleven consecutive months. This is the longest that the PTI has
remained below its moving average since the 1973-74 bear market.
A good many new subscribers are asking about my Primary Trend Index (PTI) and what it is and
what it means. The answer lies below. And by the way, I have no control over the PTI - it's
computed mechanically based on price action each day.
PRIMARY TREND INDEX:
This is an Index that I developed during the late '60s and first introduced in Dow Theory
Letters in 1971. It has been extraordinarily useful in defining the true, underlying trend of the
stock market and specifically the trend of the NYSE.
The PTI is my only secret. The reason I keep the construction of the PTI secret is that I
believe that if I made its construction public, too many people would use it and it might soon
become useless or at least much less useful.
The PTI is composed of 8 indexes and averages, all geared to market action. None of the
indices is subjective or a matter of judgment.
The PTI has faithfully traced the course of the stock market through bull and bear markets.
Because the PTI has been rising along with the stock market (with just a few interruptions)
since 1974, many people feel that the PTI must have some kind of upward bias. This is not
true. For instance, on April 12, 1972 the PTI was at 1072. By December 27, 1974 the PTI had
collapsed to 125, a huge drop of 947 points.
From 1974's level of 125 the PTI turned up, forecasting a new bull market. By 1998 the PTI
had climbed to well over 5,000.
I have used the 89-day moving average of the PTI as the dividing level between the bullish
mode and the bearish mode. So it's easy to "read" the PTI: all you have to know is -- up
from down. If the PTI is trending up and above its 89-day moving average the stock market
is bullish. If the PTI is trending down and below its moving average the stock market is
bearish. That's all there is to it. |
