Great charts, G.
Clearly, it's different this time (ng): No V-bottom in equip orders. Everyone is guessing how long this flat bottom lasts. IMO, we won't retest the panic selling stock prices of late September 2001 (barring another and worse terrorist attack). Semiequip stocks will be held up at current levels by the expectation of an upturn in orders within 6 months. I'm guessing AMAT bounces around for most of 2002, in the same old 40-50 range. We've had enough bear rallies that have failed in this Bear Market, that investors are learning to SellTheRally. And enough investors have decided that October 2001 was THE bottom, that BuyTheDippers will support stocks at levels well above the 10/01 trough prices. Just like in 10/98, BuyTheDippers got rewarded quickly and handsomely, which reinforces that behavior.
The Nas, like AMAT, is sitting at a critical support level, and I'm betting support holds. I'm now 90% long, and only 10% cash+short. This is less cash+short than I said I would be holding, about 2 months ago. The reason for my shift is, I've seen a lot of evidence of a bottom in fundamentals. I don't think things get any worse. Stock prices will eventually follow change in fundamentals (with wide volatility due to random sentiment swings). Since I think the fundamentals will be flat or up from here on out, with little chance of down, I'm willing to shift to a "longer" stance. But I'm not using margin, and I'm not buying LEAPs, because prices aren't that good, and sentiment isn't that bad.
Even if the overall market goes flat or up, there are going to be lots of sectors that go down. My guesses for losers in 2002:
1. housing. I just don't believe they are "immune", I think the housing sector has to do what it typically does during a recession. Of course, this includes everything that tracks with housing, which is a large part of the economy.
2. telecom equip. Demand won't turn back up until 12 months after the overall economy turns. That means not till 2003.
3. I see LT interest rates drifting higher, and more companies sinking under heavy debt loads. So I wouldn't buy anything with a lot of debt, or any company whose customers have a lot of debt. One of the reasons I like the semi and semi-equip space, is that balance sheets look so much better than in most other industries.
4. And the CreativeAccounting that became standard in the 1990s, is going to catch up with more companies and countries. There will be more Argentinas and Enrons. So, another rule of mine, is to get out at the first whiff of a hint of a shadow of Trouble. The StrongAndHonest will win, and the WinnowingOut process that kills DebtorsAndLiars, has not ended yet. |
