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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 684.39+0.1%Dec 4 4:00 PM EST
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To: HairBall who started this subject2/28/2001 4:57:12 PM
From: jmootx  Read Replies (2) of 99985
 
Following reasons to be bullish:

1. Panic is high. The market can only focus on the Fed and rates. There is no earnings visibility in the technology sector. This is a great scenario. People are now selling for no reason.
2. Earnings will begin to expand, but PE ratios will contract. In other words, do not expect to buy Cisco at 24 and look for a 40% return in a year. NASDAQ will be lucky to see a year end target of 2400.
3. The standard with most stocks that have cycles is buy when the PE ratio is high (in slow earnings times) and sell when the PE ratio gets low (in robust times). Right now the NASDAQ has an average PE ratio of 40, well off the 100 level seen. Expect this ratio to fall to about 25-30, but stocks will go up in the process. In other words as high tech grows earnings at 30%, the stock may rise 15%. This is why I feel current PE's are now a value. The difficulty is learning to accept 10-15% returns again in the post bubble era.
4. High growth stocks will be few and far between. Once again, only the best researchers who can uncover unknown companies with new products, services, and the like will be winners of 100% plus in a year. But they will be very volatile and climb a great wall of worry like they should, instead of rising on irrational exuberance like the last 5 years.
5. Inflation will also rise, but will fall behind the growth rate of earnings. This is due mostly to energy costs. This can be hedged by having a 20% holding in the energy sector.
6. Retroactive tax cuts will be good for consumer spending, so the best retail stocks will do well.

Good enough for me anyhow.
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