From Briefing.com
Updated: 08-Jan-01
General Commentary
Investing can be hard or it can be relatively simple - it's up to you.
On the one hand, you can expend energy fretting over the reasons behind the Fed's decision to move
earlier and more aggressively than expected when it cut rates by 50 basis points on Wednesday. Do they
know more than the rest of us about the severity of the slowdown? Did they move to head off the impact
of a banking crisis in California related to the problems with that state's utility companies? You can also
continue to agonize over the steady stream of earnings warnings and the sloppy performance of the old
leadership names in technology.
Or you can adopt the time-tested and very simply market strategy which says that you don't fight the
Fed. Once the Fed moves from tightening to easing, it's rally time. Not overnight, mind you, as the market
still has to work through the noise associated with the slowdown that necessitated the change in policy.
But within a few months the market has historically righted itself, and after another few months have
passed it's usually pretty clear that a new uptrend is firmly in place.
Unfortunately, CNBC, CNNfn, the WSJ, Barron's, Time. etc. tend to overanalyze everything - especially
a change in Fed policy - making it easy for investors to lose sight of the big picture. Changes in Fed
policy are rare and major events. History tells us that when the Fed changes policy it should be your focal
point.
By moving to lower interest rates the Fed is telling the market that it will take whatever steps necessary to
bolster the economy. And with a stronger economy comes stronger corporate earnings. Basically, by the
middle of this year the economic/earnings outlook should be much improved. Traders should also keep in
mind that any improvement will be magnified by soft comparisons. Finally, it is important to keep in mind
that the market is forward looking. Just as the big market break early last year presaged the soft
economy that we now see by several months, the market will begin to rally well in advance of the actual
economic upturn.
Given that the numbers should begin to improve no later than mid-year, it won't be long before stocks are
beginning to foreshadow the economic recovery. How will they do that? By going higher.
Though Briefing.com expects most of the tech sector to participate in the rally eventually, the overhang of
disappointing earnings will result in some near-term turbulence. Consequently, traders need to be
selective at the moment.
One way to narrow the field a bit is to look for those stocks that have spent some time base building
and/or moved back above their 50-day moving averages. Sprint (FON), KLA-Tencor (KLAC), Micron
(MU), Worldcom (WCOM) and Altera (ALTR) all come to mind. Conversely, investors might want to
wait a bit longer before jumping back into those stocks that continue to exhibit sloppy technical
characteristics and/or relatively lofty valuations... A few such names are: Siebel Systems (SEBL),
Broadcom (BRCM), Sycamore Networks (SCMR), Macromedia (MACR), Adobe (ADBE), JDS
Uniphase (JDSU), Ariba (ARBA) and PMC-Sierra (PMCS).
Whatever your strategy for stock selection, it should be guided by one simple theme - don't fight the Fed.
As of Wednesday, that translates in to "buy."
Robert Walberg |
