*Trimtabs bottom lines:
11/12 Bottom Line: We Remain Bearish. Why?
Add Together A Still Weakening Economy to Bearish Corporate & Individual Investors.
We remain bearish even though our model
portfolio has lost about 6% of its prior year-to-date
gain since we first made our bearish call October 8.
The three reasons: Corporate investors remain
bearish. Yes, buybacks are strong, but new offerings
and insider selling are still swamping corporate float
shrink actions. Individual investors are not putting new
money into the stock market. So far this year, just 5%
of new savings flows have gone into stocks vs. 50%
last year. Then there’s the major problem of the overall
economy taking a major header.
Hedge funds have enough assets to move the market significantly over the short term. However, unless
both corporate and individual investors follow, the US stock market is likely to roll over and retest the
September lows. Unless of course, new cash takeovers start to perk up mightily here, while new offerings stop.
11/5 Bottom Line: We Remain Bearish. Companies Need To Raise Cash, Not Buy Others.
We remain bearish, and have been since October
5 when the Market Cap was $13.5 trillion vs. $13.9
trillion this past Friday. Nothing has happened to
change our opinion. In fact, corporate liquidity appears
even weaker today than it did four weeks ago.
Corporate America is rushing to sell as many new
shares and bonds as possible. Corporate bond sales are
setting records and the sale of new equities this year is
likely to be just 10% less than the record set last year.
The stock market has plunged over the last year
and a half, while corporate investors have been heavily
selling. Yet, Wall Street professionals remain bullish. What’s wrong with this picture?
Wall Street professionals seem to be much more interested in the second type of stock market liquidity
flows of new cash into the stock market. The third type of liquidity, for the record, is borrowing to buy shares.
For most of the five year bull run from 1995-2000 the trading float was shrinking, there was more money
looking to buy fewer shares, while margin debt growth trailed the overall market cap. Since last year, corporate
liquidity has been bearish while cash flows were bullish. As we keep saying, corporate liquidity is the key.
The long bull run from the end of 1994 through early 2000 created $13.5 trillion in paper wealth. That gain
has now shrunk to just $8.5 trillion. Wall Street professionals and top execs at many a tech wreck act as if the
stock market will regain that $5 trillion sometime soon.
The fact that they act as if they believe the bubble values will return, leads us to believe that we could test
the $10 trillion market cap barrier before we find corporate investors finally turning bullish.
10/29 Bottom Line: We Remain Bearish. Hedge Funds Buy While Corporate Investors Sell.
We remain bearish even though the market has
kept rising over the past few weeks. This will not be
the first time that investor sentiment and corporate
liquidity have diverged for more than just a few weeks.
Not only are corporate investors selling lots of
new equity, but straight bonds are also setting records.
The longest divergence since we’ve been tracking
was when corporate investors turned bearish in
November 1999 and the overall market did not start
heading south until early April 2000.
This divergence hopefully will not last anywhere
near as long, unless of course corporate investors turn
bullish soon.
Last week an incredible $28.7 billion of long term corporates were sold shattering the prior weekly mark of
$24.8 billion set this past January.
Let’s see, record sales of straight corporate debt and convertible bonds. Hefty sales of regular secondary
offerings. No new cash takeovers and less than the usual amount of new stock buyback announcements.
On the other hand both hedge funds and individuals are very bullish.
We’ll side with corporate investors for now.
10/22 Bottom Line: We Remain Bearish. If Corporate Investors Stay Bearish, So Will We.
We remain bearish. The simple reason: Corporate
investors remain bearish. Yes, there was a record
amount of stock buybacks and a spike in insider
buying the first week or so after trading resumed.
However, since then corporate buying has
virtually stopped. Over the last three weeks, there’s
been about $1 billion of new cash takeovers and
almost $12 billion of new offerings. That’s about as
bearish a corporate liquidity picture as we can
remember. Until that changes, we will remain bearish.
From a sentiment point of view, over 60% of the
American Association of Individual Investors have now turned bullish vs. a record low near 30% not long ago.
10/15 Bottom Line: We Turn Bearish From Cautiously Bearish.
We turn fully bearish from cautiously bearish.
Corporate investors are not buying shares, at the same
time as the new offering calendar is surging. That says
that corporate investors do not yet see a bottom to the
current economic decline and are unwilling to use up
cash to buy stock at this time. They would rather be
selling shares now to raise cash. So would we.
The crowd of Wall Street traders can be herded
by emotion. The fear following the terrorist attack
created a one week 12% plunge in stock prices. Now
that Wall Street no longer believes the world is coming
to an end they bought back the shares they sold.
That puts everything back to where it was in early September, except that there are now less people
working and less business activity. In early September, corporate investors were bearish and after a brief spike
in buybacks to support the overall market, corporate investors have returned to a bearish stance.
Not only have Wall Street traders apparently reinvested the cash raised during the post terror week, but
fund investors have finally gotten bullish again, pumping in a hefty $7.4 billion in one day the biggest one day
flow in months. Inflow spikes usually happen at a market top.
We will double our short position in the S&P 500 futures, going short four contracts from two.
10/8 Bottom Line: We Turn Cautiously Bearish From Neutral Until Cash Takeovers Boom.
We turn cautiously bearish from neutral. Last
weeks rally appears to us to have been generated by
Wall Street professionals realizing that the world
was not coming to an end after the September 11
events and re-invested the money pulled out the first
week trading resumed as well as by covering shorts.
After a magnificent one-week blossoming, actual
stock buybacks according to trading desk sources
have slowed dramatically. Further, we can’t find nary
a cash takeover of an already public company. A
major LBO fund principal says while his fund has 10
transactions in the works, all are for the purchase of a division of a public company, and none are for an entire
publicly traded entity. Why, we asked? The top guys at beaten down tech stocks are unwilling to sell at anything
near today’s price at least for now, our source says. Further, he adds, cash flow is rapidly disappearing at those
companies that would be interested in selling out.
Until cash takeovers do pick up, which will only happen when corporate investors feel confident about their
future, we will expect to stay cautiously bearish. We sell two Dec. S&P 500 futures in our model portfolio.
10/1 Bottom Line: We Turn Neutral From Cautiously Bullish.
The Key: Corporate Buying? If Strong, Then We Turn Bullish, If Not, Look Out Below.
We turn neutral from cautiously bullish. Yes, we
were bullish for a short period of time. We do not try
to be short term oriented in our calls. However, these
are not usual times, to say the least.
The key, as we repeat ourselves, are corporate
investors. If they pick up their cash buying of both
other companies and their own shares then the market
should keep rallying. But, if corporate buying slows
and reverses, then the stock market could be in trouble.
Particularly worrisome at this time is that fund fiscal
year end is fast approaching, with lots of selling likely.
While tax collections did pick up last week, the slump in incomes is real. Less incomes means less new
cash available for investment. The stock market historically is weaker during the second half of the year. No
coincidence, tax collections weaken starting in August and don’t pick up until December.
9/24 Bottom Line: We Turn Cautiously Bullish From Bearish & Keep Our Fingers Crossed.
We turn cautiously bullish from outright bearish.
The keys are the hefty buybacks by corporate
America. If corporate America keeps on buying back
their own shares, as well as buying other companies
for cash, then at some point soon the panic selling will
end and the market will rebound.
However, if corporate America stops buying
anytime soon, then our bullish call will be reversed.
As we mentioned above, we recommend waiting
to buy until the market no longer sells off 30 minutes
after the market opens and during the late afternoon.
We certainly do not recommend anyone to get fully invested this week. However, we recommend short
covering and initiating modest long positions as soon as the margin selling stops.
As this is a weekly, we will cover our short positions in our model portfolio and go long two December
S&P 500 futures. We expect to add to our position next week, if the selling does stop this week as expected.
9/17 Bottom Line: We Remain Bearish Until Corporate Investors Turn Bullish.
We remain bearish. Our position is not meant to
take advantage of anything. Rather, our job is to report
on what is, rather than what we want to be.
As soon as corporate America turns bullish and
starts to aggressively shrink the trading float of shares,
we will most gladly also turn bullish.
Until then, in our model portfolio we will remain
short seven Dow futures and change from being short
two NDX futures, to short one S&P 500 future.
9/10 Bottom Line: We Will Remain Bearish Until New Cash Takeovers Start Surging.
We remain bearish. Last week the NAPM report
said that the manufacturing side of the US economy
has stopped declining. We have not seen any evidence
yet that corporate types feel confident enough about
the future to start buying their own and other company
shares for cash.
What we have seen is that income growth is worse
than what conventional wisdom expects. As that
reality works its way into the stock market, at the same
time as mutual fund fiscal year end dividend reduction
and window dressing selling happens, look out below.
Given that the Dow 30 are mostly old economy, consumer stocks, we will short seven Dow futures and
reduce the model portfolio exposure to the NDX by buying back two and staying short two.
9/3 Bottom Line: We Turn Outright Bearish, Even if Short Term Oversold Rally Likely.
We turn outright bearish from cautious. We admit
to erring in being neutral over the past three weeks.
However, that’s still better than having been bullish.
Corporate investors are not only not buying, but
the sell/buy ratio is very high. The NASDAQ will
probably be particularly weak through equity funds
October fiscal year end. Add in an economy that might
be dropping further from here.
We will sell our long position in the S&P 500
futures and remain short four NASDAQ 100 futures.
8/27 Bottom Line: We Remain Neutral Even Though No New Offerings Short Term Bullish.
We remain neutral even though over the next few
weeks, liquidity is expected to be positive since there
are few new offerings likely. That could set the stage
for a continuation of the recent stock market rally.
However, for us to turn bullish here, we would
want to see many more new cash takeovers and stock
buybacks then recently. One bullish indicator is insider
selling guru, Paul Elliot of Thomson First Call, telling
us that insider selling of #144 shares has been slowing.
On the other hand, he has yet to see any real pickup of
insider buying.
Notice on the below charts, that the one-week moving average of liquidity last week rose above the four
week. That is another indication that we could have a decent short term rally.
Never the less, we will maintain our hedged position of long the S&P 500 and short the NDX. |
