Gottfried, I noticed this one also. He could be right, but doesn't this Dow theory seem a bit out of place these days? For example, if you read the full interview in Barrons, he mentions dividend yields. Correct me if I am wrong, but it seems to me that companies are moving away from dividends because it just forces a capital gain on investors (not really a smart thing to do). Also, shouldn't an up to date theory on the market and economy take into account more than just the relation between the Dow industrial and transportation stocks? In our new economy there is a lot of "transport" occurring over the internet, that whole theory just seems a bit odd to me at this point. Maybe the theory needs to be modified to include some characteristics of the new economy.
It makes sense that more bears come out when the market is down. Every good bear is probably telling their story now, and we need to be careful to not to be adversly influenced by these arguments, as there is a tendency to sell at the bottom and buy at the top. In the case of tech stocks, some prominent bears have been suggesting for years that techs are going down to trough valuations. Correct me if I am wrong, but I think the last time this happened was about 10 years ago. In the tech crashes in 96, 97, and 98, I believe the tech market recovered without reaching those trough valuation levels. So by this thinking the extreme bearish view on techs has been right less than 1 out of the last 4 times (even less if the "crashes" between 1990/91 and 95 are included). There is also risk in believing these extreme bear arguments, what if they turn out wrong and one is left on the sidelines during a major move off the bottom? Also, Peter Lynch and Warren Buffet both suggest one should not try to time the market, look instead at individual companies. Buffet in fact has been buying lately, which I think is a bullish sign for the overall market. Not techs of course, but that is not his ball game.
Some of the tech bears have suggested the Naz is going to 1000. Maybe it will, but it is interesting that after getting pounded by so many different things, the Naz is not even close yet (e.g. dotcom bubble burst, post Y2K buildup syndrome, telecom inventory thing, excessive Fed rate hikes, reverse wealth effect, presidential election crises, change in presidential administration, bad winter storms during Christmas shopping season, China crisis, tax return selling, etc.).
This is just food for thought. I don't know which way the market is going to go right now, but the lower it goes the more I think up is the likely direction it will take. Perhaps one thing that we all forget is that once things start to turn, a lot of the same effects will operate in reverse (e.g. consumers feel better because of market and spend more, companies feel more confident, so increase orders, etc, etc.). Tomorrow will be interesting, I think there is good chance that the market continues this rally from here.
Good luck to all (and if anyone figures this all out, let me know!).
John |
