Market Commentary: Cloudy Outlook
by exbondguy {a third-party money manager},
03/02/02
Anyone who follows my prognostications knows the frustration that I have encountered since early January. My thesis, initiated in early October, was that seasonals, an oversold market and a recovering economy would be a catalyst for capital gains over the ensuing six months. Everything was going right roughly until the 2nd week of January. What I missed most in my calculations was obviously the expansion of risk premiums that I am confident can be explained by "accounting fears". I also have maintained an expectation that small-cap dominance would continue and that technology would show leadership as well.
Now what?
I came very close to declaring the new bull market as just another bear market rally, but we held key levels. I am discouraged by the charts (except for the Dow), which do seem to indicate that the trends are downward (stabilizing 200dmas now heading down again), but, as I have mentioned before, I don't put all my eggs in that basket. I do think that we have some room, one way or the other, for upside in Tech here. If it happens with the other stocks stagnant, it will add to my growing conviction that this is just another bear market rally. On the other hand, the market did bounce where I expected it to in the confines of a "normal" correction of that powerful Q4 move. SOX continues to hold in very well. Bottomline: Tough market to trade and, quite frankly, to invest, but I still am confident (60%) that year-end levels will be higher than today. My original guess, which was definitely too "cute" was that Q1 would be strong and Q4 as well, with stagnation in the middle quarters. Even trying to guess quarters is tough, but months is ridiculous. Of course, the first two months have killed me, forcing me to abandon my favorite stocks in my leveraged acct (luckily, I might add, as FLEX and BEAS went from stars to mud). I did add back to leverage, going with the more manageable QQQs on 2/20. Not a great trade yet, maybe not at all.
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