Cover of Barrons has a Bull really mad says best time in the pasat 5 years to buy stocks..
Everyone overly bullish. Not good.
IBD put call ration highest since 1987..
The Big Picture
Monday, September 24, 2001
GE Guidance Stems Another Dow Freefall
Investor's Business Daily
The Dow industrial average came close to poking below 8000 early Friday. But upbeat earnings guidance from the granddaddy of blue chips helped stem the slide.
The Dow gapped lower at the open and plunged 3.7% in the first 15 minutes of trade. Then at around 10 a.m. Eastern time, General Electric (GE) projected it would earn $1.41 a share this year, an 11% increase from year-ago levels.
New GE boss Jeff Immelt added that the diversified firm is “well-positioned” to grow at double-digit rates in 2002 as well. But he also believes the economy won’t recover that year.
Still, investors took to GE’s news like a pack of starved wolves to fresh juicy meat. Minutes after the news crossed the wires, the Dow rocketed from 8073 to 8436, a 4.5% gain in just half an hour.
But as further proof of Friday’s high volatility, the index quickly gave up a large chunk of those gains. It then treaded sideways for the rest of the session to finish down 1.7%. For the week, the 30-stock index fell 14.3%, its second-worst drop, behind only a 15.6% landslide in the week ended July 21, 1933.
The Dow hasn’t yet tested its low of 7400.30 seen on Sept. 1, 1998, when the market was also in a steep decline. But last week’s sell-off was so brutal that the Dow is now 21% below its 200-day moving average. Three years ago, the Dow lay 14% below the long-term trend line.
Nearly a dozen IBD industry groups gained at least 1%, including Oil & Gas-Drilling, Leisure-Toy/Games/Hobby, Aerospace/Defense and Transport-Rail. Still, the other major indexes also performed poorly. The S&P 500 lost 1.9%, ending down 11.6% for the week.
The Nasdaq slumped 3.2%, down 16% for the week. While the weekly decline was worse than the Dow’s, it came short of the Nasdaq’s 25% roasting in the week ended April 14, 2000.
Volume surged on both exchanges, boosted in part by the triple-witching expiration of options and futures. But on the NYSE, it was shy of the Sept. 17 record 2.37 billion shares.
If anything positive occurred, it was that pessimism continued to grow. The put/call volume ratio rose to 1.21, the highest level seen since IBD began tracking the data in December 1985. This means for every 100 bullish calls, options traders bought 121 bearish puts.
Meanwhile, the Chicago Board Options Exchange’s Market Volatility Index, or VIX, notched a high of 57.31, its highest level since a 60.60 reading in the week ended Oct. 9, 1998.
Don’t take these secondary signals, though, as a cue to begin snatching up stock. Keep in mind that records are meant to be broken. It’s not surprising, as the public’s share of stocks has grown to record levels.
The No. 1 indicator of the market’s direction is the market averages. If they show a sustained rally, then it’s time to look at IBD’s New Highs List to identify the leading sectors. The next step is to find top-rated stocks in these sectors that are building solid bases. In the meantime, you’re safest in cash.
Food stocks, which moved higher the past few months as investors sought a defensive shelter, got swept into the sell-off. All six food groups, including Food-Canned and Food-Confectionery, fell. Performance Food Group (PFGC), which pinched its 200-day moving average Thursday, fell another 1.67 points Friday to 24.48 on nearly double average volume. |
