Colby-
"Combine that with continued earning alerts and the possibility for a serious correction exists."
I don't know what stocks you've been looking at, but aside from the major averages, there has already been a serious correction. Chip stocks have been chopped by 30-50+%, biotechs have been hurting, oil-service stocks have slipped, networking stocks have been unplugged, QGLY's off 30+%. Stocks that have given no indication of an earnings shortfall are being dumped.
I'm not thrilled with the market either, but I don't expect a long-term disaster scenario. As soon as there is more visibility for 1998 earnings, and once enough earnings estimates have been slashed sufficiently, the stocks will stabilize.
My concern is that the big caps generally are very overpriced, even as most other stocks have suffered 15-80% corrections. The illusion is that the market is down only 10%, but the bear market has been occurring for a while in many stocks, including small caps.
The "pulling out of small caps" that you envision has already happened, and it's continuing to happen. However, I certainly believe that fundamentally sound stocks are much closer to their bottoms than to their tops. Assuming the earnings picture for many groups looks better in late 1998 than it does currently, I expect a tech rally (originating in the chip-equipment industry) in about 2 months. That should help many stock groups.
The real question is whether the large numbers of clobbered stocks can establish a sustained rally while the big caps (XON, KO, PG, EK, G, DIS, MSFT, etc.) remain so overpriced. If they can't, the big stocks will have to crack. The impending correction in the big stocks may further pressure those stocks that have already been squashed. In this latter scenario, the market will eventually be able to stage a significant, sustained rebound in nearly all sectors, because all stocks will have been washed out.
Here's my perspective: I buy stocks to sell at certain price targets (or perhaps only when their fundamentals deteriorate). Until the market presents me with a fair price for my shares, I'm not going to sell them. Think of stocks as if they were valuable paintings, and you are very confident that they will be worth much more in 5 years (or even 2 years). If the fine art market began to decline sharply, and no one knew how low prices would fall, would you rush to sell your paintings? Or would you remind yourself that despite fluctuations in the prices of fine art, you don't want to sell them until the price is right.
It's not a perfect analogy, but it helps to remind me that despite the wild swings and downdrafts in stock prices, I should focus on my stocks' price targets for 1999, 2000 and beyond. Therefore, I try not to worry about the path that the stock price takes on the way to my price target. If you are a trader or an owner of stocks with questionable fundamentals, this analogy doesn't apply. In these cases, you probably need to be concerned with the fluctuations in price.
It seems that the emotional pain comes from the need to sell at every top and buy at every bottom. In other words, the fear of missing opportunities, such as selling a stock now, and buying it back at a lower price. If I have the chance to do this, but I don't, I may feel like I missed an opportunity. I deal with this constantly. I just have to accept the truth that I'm not going to be able to take advantage of every opportunity.
In the meantime, I'm going to wait for the dust to settle, for the right time to buy the right stocks at the right prices.
Good luck.
Todd |
