Hi Bill--
Thanks for your detailed posting
>>A healthy debate allows people to make informed and rational decisions and nobody wants to be on the sidelines for another 2-3000 dow points like the bears of 94, 95, 96.<<
Bill the best of all worlds is to be positioned on the right side of the market; the second best is to be out of the market altogether and in cash because that way one at least preserves ones capital. The least desirable option is to be on the wrong side of the market --whether the market is headed up or down. I am strong believer in following the trend--no matter which market I trade--and please note that I said "trade" as opposed to "invest". When the trend of the market changes, I'll have no hesitation in going short--but until then, I would no more take aggressive short positions given where we are, than go aggressively long in a market that is falling like a rock.
>>All cycles must end sometime
I agree with you on this
>>and this time has the 'feel' to me.
You may be right--I don't know how good a trader you are in terms of gauging a market by "feel". Some people are good at doing that, others are good at reading the tape. I am not good at either --- so I rely on mechanical indicators/systems/rules to help me establish trades.
>>I'm sitting on the sidelines for a while and watching and placing some small bets on the downside.<<
As I posted earlier, despite my relatively bullish posture, I commenced liquidating positions in my retirement accounts, at the rate of 10% a week--30% liquidated so far--and I am doing this precisely because I have become a little wary of the market and as we know one cannot lose money taking profits.
>>There just doesn't seem any margin for error here. The (we) boomers screwed up the 70's with disco & inflation, the 80's real estate market, now they're screwin up the 90's stock market. Those cycles ended, so will this one, but timing this thing may be elusive.<<
Money needs a place to go--and fortunately or unfortunately, at this time the place that money is going is into stocks. The flow of funds into 401Ks and other retirement instruments is mind-boggling. The latest tax proposals passed by Congress will permit the establishment of IRAs for a great many people using after tax dollars and this will compound the availability of funds for investment. Then we have the mergers and acquistions for cash--and those funds need to find a home. To cap it all there are serious proposals to permit the investment of part of the Social Security funds into the stock market as a way of improving the returns that the fund is achieving. We have a juggernaut here that is powering the stock market.
Now what you are right about is that at some point something will derail this -- it always happens no matter what the latest fad happens to be. But at this point, I can't see what will the trigger will be. Those who keep citing 1987, with all due respect are using the wrong analogy--the situation is different. The monetary environment was downright hostile in 1987, the dollar was falling out of bed, budget deficits were sky rocketing, inflation was higher than it is today, and so on.
>>I disagree here, there have been bouts of speculative excess over the last 2 years and right up to today, in 95/96 it was the semi's, in 96/97 it was the networkers, in 97 it was Y2K. How about Bre-x, how about the little energy company Harken Energy, trading 6M shares a day on AMEX a couple of weeks ago on a RUMOUR of big oil discovery in Columbia, read the HEC thread to see people in the throes of speculative euphoria.<<
All of the instances that you point out are instances of speculation to one degree or the other. What I meant when I referred to the absence of frothiness was more akin to what we had in in the spring of 1996. I am looking for the wholesale move into third and fourth tier stocks -- which has not happened. Remember that the secondaries have been in a bear market for the past year or two--they have just started to recover. About the only thing that causes me to wonder whether this type of speculation is a thing of the past is that with the advent of the heavy use of mutual funds, individuals who at one time would have speculated in these types of stocks and driven them up, now place their monies in mutual funds that are less likely to invest in these dubious stocks.
>> How about Gateway 2000, which was slightly nipped 5 points after a earnings warning and was bid back up 3 points the next morning on the PROMISE (speculation) that sales will rebound in the fourth quarter (I think this stock would have been hammered 10 points and taken time to recover in any other time period of the last couple of years). <<
The interesting thing about the GTW situation is that I saw the price action as a bullish thing for the market. It is a well known axiom that a strong bull market( whether in stocks or anything else) tends to ignore bad news and exaggerates the significance of good news. By the same token a severe bear market almost ignores good news and over-emphasizes bad news. Remember that I am talking about the overall market's reaction to GTW and not the merits of the stock itself.
>> What about the popularity of options, everybody wants to learn to play options.<<
Now you are closer the truth in terms of speculative excess--I had not thought of it but perhaps the popularity and widespread use of options is in fact a sign of this excess. Good point! I wish I knew how significant the recent trading volume in options is compared to that during previous market peaks--that would estabish a more legitimate basis for comparison.
>>You commented on the large number of posts here generated after Bill's beep and all the people buying July puts - speculative euphoria, irrational exhuberence to the down side. <<
The point I was making is that I saw this as a contrary indicator of sorts--if a thread had opened calling for DOW 20000 by the end of 1997 and it turned out to be a really hot thread, with everyone saying that one should and take positions in anticipation of this occurring, I would view it a a negative of sorts.
>>I see a lot of money managers interviewed on TV and when asked about the condition of the market they give the company line about low inflation, reasonable growth, corporate profits, mutual fund money, worldwide capitalism, but lately I see some of them say this nervously and with less conviction.<<
All of these are some of the components that have been fueling the positive environment for stocks. The fact that many of them say this with nervousness is a good sign -- we need to be wary when it is presented with the conviction that nothing can go wrong in this environment.
>> Harvey Eisen on WSW, Friday, commented that of all six times in the past when the S&P rose 20%+ two years in a row it was lower the 3rd year<<
But lower by when--if the market rises another 1000 points over the next four months and then declines in the final two months and ends lower--what would that prove??
>>When Louis asked him if he had become a bear, he said no, because they handed him his head when he went from bullish to neutral<<
My concern with people like Eisen and Metz and their ilk, is not that I fault them for their view on the market but that they have been downright wrong and unwilling to change their position in the face of one of the greatest bull moves ever. I have a lot more respect for Elaine G who blew it with her last bearish call and then reversed course although the market was quite a bit higher, rather than keep insisting that the market is set to decline in a big way.
>>sorry for the long post Tom
No need to apologize for the length of your posts--just look at the length of some of mine----just hope that someone besides myself reads them:)
>>and I welcome any rebuttal!
Bill you have made some good points, esp as to what constitutes speculative excesses. The purpose of my postings was not so much to argue that this bull market has a long way to go as much as to suggest that the Big K may be a while in coming. In the meantime we need to accept what the market is telling us -- as opposed to us telling the market what it ought to do:)
I learned a long time ago--the hard way-- that the easiest way to make money trading is to follow the trend and the surest way to lose money is to fight the trend. If one is uncomortable with the existing trend then stay out of the market. I repeat this ad nauseum on other threads and to people who ask me my opinion on what they should do--hoping that less experienced traders will take it to heart because it will save them a lot of grief. I wish that I had someone teach me this when I first began trading--but then I probably would not have listened to them:)
Good trading---and make yourself a lot of money with or without the Big K:) |
