Zeev:
Sy Harding -- one of the better non-turnip market timers -- thinks an intermediate bottom is getting close.
Next Buying Opportunity Approaching? June 14, 2002.
Can the economic, corporate, or market news get any worse? Perhaps not.
And for the stock market that just may mean a buying opportunity is not far away.
The U.S. stock market continues to decline. International markets, which were touted by Wall Street as potential safe havens, also continue their bear
market declines, leaving investors with few places to hide.
Economic numbers, which had been encouragingly strong in the first quarter of the year, have deteriorated enough in the last few weeks to confirm that the
economic recovery may be fragile at best.
This week the Fed’s Beige Book reported that economic growth is modest and uneven. Economists were surprised by the report of a decline in retail sales
in May. On the jobs front, last month it was reported that 43,000 new jobs were created in April, encouraging the market. But a few days ago that number
was revised down to an anemic 6,000. That was a repeat of the pattern of recent months, with the Labor Department releasing high jobs numbers for
February, then March, and now April, and then revising them down the following month, even to job losses rather than gains.
The U.S. dollar continues to fall against foreign currencies, raising the cost of imported goods.
Terrorist fears, which had begun to subside, returned to front pages in the form of a ‘dirty’ bomb threat, and the ease with which the ingredients can
apparently be found.
On Friday it was reported that all-important consumer confidence has plunged to 90.8 from the previous month’s level of 96.9, not a good sign that
consumer spending will continue to drive the economy going forward.
The news from corporations of still more scandals, insider trading, etc., is not providing anyone with increased confidence in the stock market, or the
current value of stocks.
Nothing that Wall Street recommends has worked out for investors for some time now. Even the ability to provide meaningful guidance is put in question
when brokerage firms, as happened this week, finally decide that it’s time to downgrade the stock of Tyco after it has plunged from $62 to $13, and
Qualcom, after it has declined from $176 to $1.70.
It’s not surprising then that investors are increasingly losing interest in the market, as indicated by another $5.2 billion being withdrawn from stock mutual
funds this week, following outflows of $5.8 billion the previous week.
In my 1999 book, Riding the Bear – How to Prosper in the Coming Bear Market, I noted that based on the history of previous bear markets, the next one
would not end until the excited determination of investors to pour all the money they could raise into the stock market at its top, is replaced by a panicked
determination to pull most of their money out. History also shows that their previous enthusiasm for the market will be replaced by an attitude of
“swearing off the damned market for good”. Thus do the majority of investors lose money in the stock market over the long-term, by becoming unduly
enthusiastic near market tops, throwing caution to the wind when they should be taking profits, and then, totally demoralized at the losses in the subsequent
bear market, losing interest just when they should begin to watch for a buying opportunity. And so the pattern of buying high and selling low is
perpetuated.
We’re nowhere near that situation of complete capitulation yet that I expect will mark the final end of the bear market. As I’ve mentioned a number of
times over the last year or so, I don’t expect that point to be reached until later this year. But bear markets do not move in a straight line down. Since last
winter’s big market rally ended I have been telling you to expect a resumption of the downside all the way to the lows of last September, probably by the
end of June, but then for a significant summer rally to take place.
That is still my outlook, and the market is getting very close to those September lows, close enough for this type of work to have us paying attention. The
low last September for the S&P 500 was 965. The September low for the NASDAQ was 1423.
Meanwhile, investor sentiment is getting about as pessimistic as it usually gets at intermediate-term market lows, and the market itself is also becoming
quite oversold on technical indicators.
So, it’s probably too late to take new downside positions in bear-type mutual funds or short-sales for this pullback, and getting close to time to take the
profits from such positions, and to begin watching for this leg down to end. |
