>> 1. Too much of a move up all at once inviting profit taking. <<
You don't seriously count about 200 points off the lows too much of a move do you? We lose over 1200 points in less than 2 months and you think a 200 point bounce is too much too fast? Whatever happened to 50-62.5% retracements? You don't think we can retrace half of this last move down? Even if we only retrace 1/2 of the move down from 3000 that would be a little less than 400 points---we're only half way done with the rally off the lows.
>> 2. An economy that might force companies to repeatedly warn <<
Possible, but eventually the market becomes resilient to bad news. Stock prices will reflect further weakness. Not only that, now that it's no shame to warn, (after all if companies like INTC/MSFT can warn, you're company shouldn't be embarrassed either), I think you have companies that aren't so afraid to ratchet expectations down quite a bit. When it seems like everyone out there is warning, more than likely companies that warn now will not be afraid to lower expectations in one fell swoop so they don't have to go through the embarrassment later.
>> 3. Mutual fund selling when folks get their statements and realize they have both tax liabilities AND capital losses. <<
Well that won't be for a few weeks, right? I'm probably long gone on my longs in a few weeks. If they get an ugly statement in a few weeks but see their stocks rocketing back up again somehow I don't think they will rush out and sell right off the bat.
Finally, while I agree the slowdown can intensify and that can make the market susceptible to more earnings disappointments, do not forget that now that companies realize this is a serious issue there are things they can do about it. Companies can proactively do things to counteract the slowdown in the economy. The most obvious of these is cutting costs. There are tons of ways to cut the fat out of a company, and some businesses don't worry about that when they are growing 50% a year. You start talking recession and you get companies like MSFT, SUNW, and HWP talking how they are prepared to cut costs to help make their bottom line. There is nothing wrong with that. In fact, that's another reason why I like some of these big companies that have been around for 15 years or more and have seen a recession or two. They know what it takes to keep the numbers up in lean times. It's these high flying bubble stocks that you have to wonder about. Many of them have come public only in the last few years in the era of free money for the taking. Just print up some more stock certificates and voila--you have more cash in the bank. I have doubts as to whether any of them have the faintest idea about how to control costs.
That's why I like companies like INTC & AMAT. You don't think Andy Grove and his pals know a thing or two about cutting costs? How about AMAT. That stock goes through a bull bear cycle every other year it seems. I am confident a company like AMAT knows what it means to cut costs and prepare for rough times.
I could go on and on. This bear market could actually help some larger more dominant companies. Companies with lots of cash in the bank can continue to fund their R&D efforts which is so important to stay ahead in the technology world. Start-ups which just came public recently and aren't profitable yet and don't have access to the capital markets cannot continue to spend the way they have been spending. Dominant large cap companies can tap the markets for capital or they have enough cash on hand as it is, and they can continue to outspend these other companies which will just plain run out of cash. Some of these larger companies can also steal talent from some of these startups which have good ideas but no more cashola.
There is one thing I want to continue to stress here. Buy large companies with lots of cash and seasoned management. Do not go for the high fliers without much cash in the bank now matter how exciting their businesses seem, unless you are a skilled trader who can catch these 20 point pops and then scoot out. These high fliers are going to continue to get money siphoned away from them which will go to the larger players who are well funded and much more reasonably priced now.
P.S. These arguments only apply if we slip into a recession . If Greenspan cuts rates aggressively like he did in '98 and wards off a recession the whole market will make a nice comeback and it will be ok to buy some of the high fliers for more than a trade. I'm not so sure he is going to do that but it's not an impossibility. |
