My Dad tells me 'well, I hope you learned something from this experience....' But I wonder what I have learned.
I have been looking for some type of guidance on the market, rather than relying on my 'gut feel' about the market. After the last year, my 'gut feel' is that marginmike is correct, and that we are headed for more bear activity in the future.
I have started following Don Hays work, though, and he has a different story. He had been very bearish, especially on technology, since 1997 based on a combination of valuation, psychology, and monetary indicators. In the last few months he has turned bullish for the following reasons:
1)the 10 day moving average of the arms index has moved above 1.5 on two occassions (march 22 and a week ago yesterday) This is a measure of fear, basically, and historically, whenever this measure has gone over 1.5, a significant rally has begun within twenty days. He considers the repeat of the signal to be very bullish, as it indicates a high level of capitulation.
2)The 39 week moving average of the put/call ratio is at about 60%. In the last ten years, this ratio has never been above 50%. Another sign of extreme fear and capitulation.
3)At the same time, the 'smart money' index has been moving higher since february or so. this compares price and volume action in the first hour of trade to the last hour of trade, the first hour being news driven, emotional, while the last hour is more rational. (I wonder how this might correlate with the commitment of traders figure that marginmike mentions...Don has not mentioned the cot in his analysis).
4)Monetary situation is very positive: yield curve is no longer inverted, money supply has been growing strongly, interest rates dropping sharply.
5)valuation: in the past, his model has shown stocks to be radically over-valued, almost embarrassingly off the charts in 2000, but now due to interest rate declines and stock price declines, we are in 'fairly valued' territory.
I like the way he uses charts to do his analysis. Without his analysis, I think I would have been reduced to 'quivering fear' in the last few months. It seems odd, though, to be going into september/october looking for a rally...'yeah right'.
I guess for now though, I will stick with his plan. In the past he has said that he expects a return of the bear next year, based on the high debt issues that Marginmike refers to....but based on the high levels of fear we have recently passed through, he has become somewhat skeptical that the bear will be able to return so quickly....at the moment he still reserves judgement on next year. I think I will see if his 'rally' scenario plays out this fall, and if the arms index drops too low, if the put/call ratio drops too low, if the smart money index turns negative, if the valuation model gets too high, if interest rates stop falling....probably I will take some investments out of the market.
but I think LTBH may still be a good policy for qcom.
And also, I am continuing to wonder...'what did I learn in the last year and a half?'
Dons web site is www.haysmarketfocus.com, a free one month subscription is available....I highly recommend the site.
Robin |
