What Can Turn This Market Around:
Where are we now...
During 1999 and the first few months of 2000 the "high techs" were the market's major source of leadership. Unfortunately for their investors, they also led the declines in the nine month NASDAQ "bear market," dragging the "old economy" indices down with them. Now, the question of the moment is "When will this end?"
A near-term market turnaround will probably require several different "preconditions" before it can take place successfully. Although I may not have identified them all, it is likely that the following are among them:
Concrete signs that the U.S. domestic economy is not headed into a major long-term recession.
A slowdown in the consistent chain of corporate earnings warnings that have impacted the market over the last two months.
A period of relative market stability during which the NASDAQ composite builds a solid base from which to subsequently advance.
More realistic market valuations, so as to demonstrate that the excesses that were present a year ago have largely been eliminated.
A catalyst - an event or action of some type that would serve as a strong signal to investors that it is now "safe to go back in the water."
Realistically, I have no idea what form such a catalyst might take - of course, if I recognize it for what it is, I will tell you about it immediately. Likewise, a slowdown in earnings warnings is difficult to predict. In light of the recently imposed Regulation FD, earnings warnings are likely to become more frequent than they have been in the past.
However, I am already tracking the U.S. domestic economy as part of TNL's "Analysis of Market Trends" and, so far, I still do not see signs that a full-bore long-term recession is developing, and economic data released last week seems to have lowered the general level of concern.
Lastly, the decline in market prices over the last nine months, combined with the continued strengthening of corporate profits, has resulted in a fairly widespread correction of the excesses that were present at the beginning of the year. An updated "Pillars of NASDAQ" shows that, of the five stocks previously tracked, three of them appear to be reasonably valued by the market, and that for the remaining two stocks, much of the previous overvaluation has eroded away.
To summarize this article - some of the criteria for a market rebound are already in place, and others may become visible in the near future.
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NOTICE
This analysis is based on publicly-available information, and is in no way warranted by me as to accuracy or completeness. I do not guarantee to advise you as to any change in this information.
I am not a stockholder in any Company mentioned in The Napeague Letter and I will not purchase, sell or own any of these Company's securities while they are followed by The Napeague Letter. I otherwise have no affiliation with any of these Companies, and I have not been compensated by any of them, or their agents or affiliates, or anyone with either a long or a short position in the Company's stock, in any way whatsoever, and I do not plan to be so compensated at any point in the future. |
