Here is an update from Thurlow Growth Fund
Tomas
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Investor E-Mail July 30, 2000
This Investor E-mail is for investors in the Thurlow Growth Fund
For current updates, performance data, and top holdings of the Thurlow Growth
Fund (THRGX), check out our website at www.thurlowfunds.com.
"Steady As She Goes…Down"
As I look out on the investment landscape, there is a lot that I see that is
bearish, and not much that is bullish. It is for this reason that the
Thurlow Growth Fund is almost totally cash right now. With an environment
this bearish, I see no reason to try to be a hero - preservation of capital
is paramount here.
Because so little of what I see is bullish right now, let me cover it first:
the brokerage and insurance sectors are showing strength. These are
basically financial sectors, and financials tend to go up when interest rates
go down or at least stop going up.
That's it. There is no other bullish news out there that I can see. I would
be tempted to list the presidential election cycle theory, and it has a good
track record, but it simply is not working this time around.
A main bearish sign: at this time all three major market indexes are all
below their 200-day moving averages. This means that, as a group, stocks in
the NASDAQ, for example, are trending down. Same for the group of stocks in
the S&P 500 and the Dow Industrials. Falling below the 200-day moving
average is a bad sign for any one index, but three at the same time is pretty
ominous.
Internets checked out of the market in late March, and since then they have
confounded everyone (myself included) with just how low they can go. Ebay,
for example, is a large but excellent company with a business model that is
textbook-perfect. Ebay has declined over 60% since March.
For the last two years, the Internets have had a way of leading the market
both directions, up and down. Same for the semiconductor stocks, which until
last week were holding on. Now the semiconductor average (SOXX) has joined
the Internets in a sustained downtrend. On Friday the SOXX index bounced off
of its 200-day moving average, but without much conviction.
Even the Dow Theory points down. Recall that the Dow Theory predicts overall
market movement if both the Dow Industrials and the Dow Transports join
together in uptrends or downtrends. Well, right now both the Transports and
the Industrials are below their 200-day moving averages, in stubborn
downtrends. The Industrials have recently had several days of high-volume
down days (called "distribution") so it is only a matter of time before it
gets even worse.
It is not my theory, but it has also been proposed that the Dow Jones
Industrial Average is forming what is known among chart analysts as a
"diamond," which is very bearish. If you have a charting program, check the
monthly chart on the Industrials and you will see what I mean.
Even the investment sentiment (a reverse indicator) is bearish: 54% of
investment advisors are bullish, while only 31% think a correction is coming
on. The same conclusion can be made from the low put-to-call ratio with
option-buyers. Basically, these numbers lead to the conclusion that money is
fully-invested and ready to move out of, not in to the market.
So how bad will it get? Only time will tell. One thing I have noticed,
however, is that the nastier the drop gets, the sooner it will be over.
When the drop ends, new leaders will emerge on higher volume, and those
stocks will be the leaders in the next run of the bull. As I have said in
the past, although I am not married to any particular sector or stock, I do
tend to gravitate to Internets.
Fundamentally, this is the group of stocks with by far the greatest
potential. This includes Internet infrastructure, software, and B-2-B
stocks. The market for business transactions conducted over the Internet,
for example, is estimated to grow from $199 billion last year to $3 trillion
in 2003.
People often ask me to give an example of my investment philosophy, "Middle
Down." The Internet stocks right now are one such example, and the Internets
could possibly be a "Middle Down" home-run in the making. Internets have
been beaten down to such absurd levels that when they begin to emerge, buying
their leaders will probably be an excellent investment.
Again, I will wait to see if this sector will be the first to bounce, but I
strongly suspect that it will. Within this sector, here are some stocks I
will be watching especially closely: Ariba Inc. (ARBA), Brocade
Communications (BRCD), Check Point Software (CHKP), Commerce One (CMRC),
Embarcadero Technologies (EMBT), Nuance Communications (NUAN), Portal
Software (PRSF), Sycamore Networks (SCMR), and Tuts Systems Inc. (TUTS).
There are others.
Good investing!
Sincerely,
Tom Thurlow
Fund Manager, The Thurlow Growth Fund
PS: In answer to your questions, I have been informed by the folks at Charles
Schwab & Co. that the Thurlow Growth Fund is now offered by Schwab
Onesource™. Also, Morningstar will give Thurlow Growth its star-rating at
the end of August.
Past performance is not predictive of future performance. Investment return
and principal value will fluctuate, so that your shares, when redeemed, may
be worth more or less than the original cost.
© 2000 The Thurlow Funds Inc. All rights reserved. |
