Investing--A. Kaufman, S&P: "Symptomatic of capitulation???"
Old article, but still pertinent.
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>>>Monday November 20, 2000 (08:00 am ET)
Confidence Still Fragile
Despite hopeful technical signs, a buying signal remains elusive
By Arnie Kaufman, Editor, The Outlook
NEW YORK, Nov. 20 (Standard & Poor's)
- S&P technical analyst Mark Arbeter has made a good case that a major low is in the process of formation. Even if the pattern of descending peaks and troughs is extended, the bottom is probably not far away.
The frustration and fear that have been producing recent spells of indiscriminate liquidation, particularly in already deeply depressed Nasdaq stocks, are symptomatic of "capitulation," which is usually soon followed by a sustainable recovery.
Once the market gets off the ground, a fairly strong year-end advance is possible. The money to fuel such a rise should be available.
We believe that equity mutual fund cash as a percent of assets is now nearing 6%, up from 5.3% at the end of the third quarter and a low of 4% on March 31.
In the five years 1995-99, when the cash ratio has been below 6%, the return on the S&P 500 over the next three months has averaged just 1.4%. That compares with an average return of 8.4% in the three-month periods following a cash ratio of 6% or more..
Reserves in the hands of individuals likely have climbed. And foreign investors, who seem to be more unsettled than Americans by the election imbroglio, may also be holding back on U.S. stock purchases for now.
Deceleration of earnings growth, such as we're now experiencing, historically has not necessarily been a negative for the market. Interest rates, moreover, are likely to be a neutral influence at worst in the next six to 12 months and could well be a positive.
Given the repeated disappointments of recent months, we'd wait for tangible evidence that rallies are starting to attract follow-through before putting additional money to work.<<< |
