Baghdad's Fall Is Honey To The Bears
John Dobosz, 04.09.03, 5:30 PM ET
NEW YORK - As statues of Saddam come tumbling down all over Iraq--and with the real-life version of the "Butcher of Baghdad" either on the run or at the bottom of a pile of rubble--conventional wisdom says that stocks should skyrocket. Most veteran newsletter editors will tell you, however, that conventional wisdom is often wrong. The war's seemingly successful conclusion has bears growling with glee, now that investors are forced to turn their attention again to the sputtering economy and lackluster outlook for corporate profits.
Robert Prechter, editor of the Elliott Wave Theorist, is about as bearish as they come (as you might detect from the title of his 2002 book, Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression). Prechter views the stock market as a meter of mass psychology and social mood that fluctuates in a series of (Elliott) waves found throughout nature. The primary trend in stocks since January 2000 reflects anger, fear, negativity and social polarization, but occasionally yields to brief periods of optimism, such as the rally in stocks that began a week before the war.
"Everything is wrong with this market--volume is weak, the breadth is poor, and optimism is way too high for this to be a bear market bottom," says Prechter, who calls for the Dow to finish the year below 4,000. "Stay safe above all and keep your powder dry, so you can take advantage when stocks rally from much lower levels," advises Prechter. His service recommends shorting Bank of America (nyse: BAC - news - people ) and Symantec (nasdaq: SYMC - news - people ), as well as buying Rydex Ursa ( RYURX) or Tempest ( RYTPX) --both of which short stocks in the S&P 500.
Curtis Hesler of Missoula, Mont.-based Professional Timing Service is bullish--but not about stocks. Hesler takes special interest in the falling dollar and warns of the danger of inflation, evidenced by a steep rise in the Consumer Price Index since June 2002. Hesler's solution is to invest in gold and hard assets like oil and natural gas, while shunning stocks, which he still sees as overvalued, citing a price-to-earnings ratio of 30 on the S&P 500. "This is not what you will see at the bottom of this bear market," writes Hesler. "You will see IBM selling for seven times earnings with no one interested in buying it."
Hesler suggests that traders have a good profit opportunity shorting the Nasdaq 100 Trust (amex: QQQ) at $27 or $28, based on the low readings of the Nasdaq Volatility Index (VXN). Interestingly, he also calculates the gold/Nasdaq ratio and it's just turned up, a bullish development for gold. He likes Anglogold (nyse: AU - news - people ) as an equity play on a resumption of the bull market in gold.
Jim Tillman of Charlotte, N.C.-based Cycletrend isn't as much a bear as he is an opportunist. He's been using Kondratiev cycles to analyze economic and stock market trends for more than 30 years. The larger 18-year cycle, says Tillman, is bearish for stocks, but the shorter four-year and ten-week cycles are bullish. He's traded the war rally with such stocks as Yahoo! (nasdaq: YHOO - news - people ), which he says has a "beautiful chart pattern" showing good volume accumulation, and Amazon.com (nasdaq: AMZN - news - people ). He also likes Applied Materials (nasdaq: AMAT - news - people ) and Applied Micro Devices (nasdaq: AMD - news - people ), though he cautions on all of these stocks to set a tight stop loss to protect your downside.
"Even in a bear market, if you can get 15% on these rallies--and even more if you get short again on the way back down--that's a pretty good return, and the rest of the time you can go fishin'," says Tillman. "Sometimes simple works."
Send comments and questions to investingnewsletters@forbes.net.
forbes.com |
