Sandspring Advisors still very bearish -- especially on financials.
As I read my incoming financial e-mail this evening, almost every piece of analysis that I have received seems to find analysts trying to pick a bottom in the equity market. And yet when I look at a chart like the one above, it is clear to me that equity weakness (in financial sector stocks at least) is no where near coming to an end, but instead just beginning.
My next conclusion is that if financial sector stocks are just beginning their moves lower, then the broader market indices are unlikely to be close to a bottom either. I admit that the wider index charts (S&P, DJIA, Nasdaq) are sloppy affairs to interpret. But if some can make the case that they are bullishly poised, I think a case can also be made for a true crash type of environment or at least a continued compression lower. So what if the Dow has been down 7 weeks in a row, and rarely does that. It's only fallen about 7% to date and certainly could fall further if market leaders like Citi and JP Morgan truly come undone.
Looking at financial stocks, few are expecting significant weakness either. "Lower interest rates and a steep yield curve are bullish for financial stocks" is a mantra I have heard all too often when visiting normally astute hedge fund managers in recent days. But what these individuals often miss focusing on is how the core businesses of many financial service firms have truly deteriorated -- fewer IPOs, fewer merger and spinoff deals, tighter dealing spreads (courtesy of e-commerce portals), more law suits, and sinking investment portfolios. Business across the board is down by more than 40% year over year, but these stocks are still priced for perfection.
The Nasdaq began its decline in March 2000. Per our belief in a cyclical rhythm to the world related to 2 * * 1000 on a long term basis, and perhaps 2 * * 100 on an intermediate term basis, we're not looking for a significant low in the equity market until approximately 628 days (or approximately 1.7 years) from the March 2000 high. That brings us roughly to November when a PEI cycle date is also due.
So until November is reached we advise: Duck and lay low. Don't try to be a bottom-picker. The time isn't ripe yet for that type of heroism. This market may still have a few financial stocks to take out and shoot first. |
