Summary of Bob Brinker.
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Index July 29 2000
DOW 10,511
S&P 500 1,420
Nasdaq 3,663
This is only a summary, not an actual transcript.
The weekend of July 29/30 2000
Opening
The top item of this weekend's program is an update for traders that put on the QQQ trade in late May, when the QQQ shares were traded between 74 and 80. Preservation of capital is paramount when trading in a bear market--losses are not an acceptable outcome in a bear market rally trade if they can be avoided, Bob says.
In order to guarantee a profitable outcome for those that are in the trade, Bob advises them to take profits if the QQQ shares dip to the $84 per share level. If prices do indeed reach that level, the status of the trade will change from "hold" to "sell at the market," which will lock in the profit from mid to late May.
A "stop market sell" order at $84 on QQQ would do nothing unless QQQ trades at the $84 price. At that point it becomes a market order to sell at the best available bid which could be slightly below $84 but would guarantee the order would be executed at that time.
(Under no circumstances should a "stop limit" be used because this type of order does not guarantee a transaction. The only type of order to use is "stop market sell" with a trigger price of $84 thereby converting the order to market order status if QQQ trades at $84.)
Bear Market
There is a confirmed statistical bear market in the NASDAQ right now--we've been down 37.5% closing and right now we are down 28% closing. We have not yet reached a statistical bear market in the Dow or the S&P, but Bob thinks we will in time. Still, the big damage is going to be in the NASDAQ--Bob think we have generated incredible excesses that need to be purged. That will likely be excruciatingly painful for many people, Bob says.
Earnings Disappointment
Earnings continued to roll out this week and many of them are disappointing investors. World Com indicated revenues for the year will be at the low end of expectations, Nokia says it is having more difficulty than expected with third quarter revenues, Amazon revenues were disappointing relative to expectations.
Bob reiterates that he recommends against trading individual stocks because the multiple compression risk is so great that anything that can cause a stock to blow up. People should not exceed 4% in an individual stock, and should have most of their money in cash reserves, Bob says. If people haven't listened to that advice before, Bob can't help them with their portfolio now. Adjustments must be made in periods of strength.
Under no circumstances should people taking money out of the QQQ trade, if it is triggered out at $84, put their money into the stock market. They should instead put it into a money market or possibly a Ginnie Mae fund, Bob says.
Preserve Capital
The lesson of the day is preservation of capital. Most money should be in cash reserves, and Bob believes it should stay there for some period in time. In January, Bob said it would take at least 1-2 years for the bear market to resolve itself, so there is still a minimum of 6-18 months to go. Conservation, preservation of capital is what its all about, because we will at some point down the road have the potential for a great buying opportunity.
Retirement Portfolio
Josephine from Boston wants to know if Bob has any advice for seniors. Bob reiterates that those in retirement mode should be in a defensive position already.
Tony from Walnut Creek, who just retired on his 50th birthday, wants to know about the outlook for financial services companies. Bob notes that just this week, Bank of America announced a major workforce reduction and is not talking about an increased growth rate going forward. In the long term, the banks will bottom out, but it is not yet clear when that will happen. Given the market outlook as it stands, your most valuable asset is cash, Bob says.
Market Downturn
Phil from Springfield wants to know if strong companies and sectors also suffer during a severe market downturn. Bob says if there is a really severe bear market, even companies with better earnings get hit hard. The reason for that is multiple compression--the earnings can be there, but the multiple is a function of what people are willing to pay at any given point. If your stock is 200 times earnings, and it declines to 100 times earnings, it declines 50%.
Scott from Monterey wants to know if there is a correlation between the stock market and the housing market in his area. Bob says that there may be a correlation between stocks and housing markets, but says the strongest correlation is the job market in a given metropolitan area.
No Recession in 2000
There is no way there will be a recession in the year 2000--a recession involves at least 2 quarters of negative growth, which will not happen in 2000. The question is what happens to the economy next year--right now there are things that should get attention, including the rate issues and the inverted yield curve. If Bob has a recession forecast, he will give it on the program, but he doesn't have one yet.
From aboard the StarShip MoneyTalk. Thank you, Trekkies.
Gary Villapiano/David Gibson
ABC Radio Networks, NYC.
Copyright 2000 ABC Radio Network |
