Good Morning Chip:
I have not posted much about stocks since the INDU bear market bottom of September 21, 2001, and the beginning of its intermediate bull market (still an assumption in my book).
During the next 10 trading days, as we approach the end of June, we have a strong chance of seeing the beginning of the second leg in the INDU bull market. Today is shaping up as another good thrashing and further weakness adds to the probability of the beginning of the second leg. Any weak buying during the period diffuses the strength of a significant bottom so I don't want to see any buying. I want to see blood and guts (my apologies to the squeamish). If we get some weak buying, the bottom could be pushed further out. However, there is now hope for an approaching meaningful bottom.
The timing for the second leg should be just right. I expect the INDUs and other "basic" firms to begin reporting strong increases in profits. These firms should benefit by the inventory replenishment of the first quarter in this calendar year and the cost cutting measures that they found and pulled out of their attics. If the profits show up as I expect, these companies will believe they have weathered the storm and will begin spending on capital equipment and other technology. At that time, I believe the worst investors of all--the poor souls who try to manage their funds--will begin loading their money into large visible stocks, including tech. These events must occur for the rally to have any strength.
I also consider it necessary for the second leg in the INDU bull market to break above 10,750 and stay there. This needs to happen over the next six to nine months. If the rally I anticipate fails, I will go into cash. My long range assumptions are that the INDU bull market will end in 2003 or 2004 at about 11,500 to 12,500. I think we could see a nominal new high in the INDU but I do not expect the S&P 500 nor the NASDAQ averages to exceed their old highs.
Once the INDU bull market is over I think we will see the reduction in P/Es over the next intermediate bear market. |
