"Market Insight"--A. Kaufman, S&P: "Selling Climax May Be Needed"
personalwealth.com
Edited for ease of reading.
>>>Monday October 09, 2000 (08:00 am ET)
Selling Climax May Be Needed
By Arnie Kaufman, Editor, The Outlook
NEW YORK, Oct. 09 (Standard & Poor's) - Psychology remains poor, with investors acting defensively. Selling into rallies has supplanted buying on dips. We recommend a cautious, selective investment approach for now.
After a long period in which strongly upward-trending prices kept confidence high, these days the risks of stock ownership are being taken very seriously. Thus, the market is doing the opposite of climbing a wall of worry. It is exaggerating problems and ignoring positive developments.
Despite the modestly stronger-than-expected September employment report last Friday, the economic soft landing is on track. We don't see any more Fed tightening this cycle and the chances have improved that the record-long expansion will be extended. Yet, attention is not on the benefits of the slowdown. It's on a normal side effect of slower GDP growth--moderation of corporate profit gains, along with somewhat greater use of accounting gimmicks to keep from missing estimates.
What will turn things around?
One possibility is a selling climax that clears the air of overhanging bearishness.
That would fit with the historical pattern of steep drops in October, followed by strong recoveries.
Of the 24 corrections of 10% or more in the S&P 500 in the postwar period, eight ended in October.
The most readily identifiable selling climax occurs in one or two trading sessions.
It's characterized by a plunge in prices, exacerbated by margin calls, and then an even sharper rebound, all on exceptionally HEAVY VOLUME.
This type of action may be seen in an individual sector, which can have broad significance if the sector is important enough (such as technology today) and has been dampening psychology generally.<<< |
