Why did I say Dow was a steal at 8000 and what do I say now? Any regrets or remorse?? NO! Jubilation? YES! More to come over 1998, maybe in the interim we lose some battles but war will be won by the bulls ultimately.
Indonesia is facing a big sell-off right now as I write. In sympathy with that, Malaysia is also down 5%. The origins of Indonesian sell-off is political mass demonstrations against President Suharto. It is not the kind of across-the-board economic uncertainty about Asia as a whole and as such I'm looking Thailand is actually up and Hong Kong and Japan are resisting the sell off and maintaining 17800 and 17200 supports. But this is a new element and one cannot discount the possibility of SPA breaking 1020 or Dow taking out 8250. The good thing about Dow is that we have two good closes above 8250 which is a very bullish sign for the virgin territory. The wall of uncertainty is encouraging the market rising to new highs, and as far as this level of uncertainty and pessimism continues, the correction to 7800 is not going to come that easy. I've been asked specifically that at what level should one start buying puts or hedge his position, I am in this respect a bit puritan and will only consider buying puts if 1008 is decisively taken out, that is two closes below that level. I think there is a good possibility that if we take out 1018, we may test 1008 quite quickly, but I have not been able to call within this bull run a level tight enough where one can enter and exit; the last thing one really wants in such a bull run is to be caught short like many at their peril have now realized. Theoretically, one can really run short positions without pain but in practical life it is not so. I've seen people theoretically running short positions from 900 level, that in actual life does not happen. In my opinion, I think we can take a cue from Hong Kong, Japan, Asia and China, even Thailand, as far as those indexes do not see the kind of selling we saw last quarter of 1997, I will not be worried about that selling spilling over and hitting Dow very hard. I certainly see a possibility of test of 1008 and will recommend for nimble traders a short side trade for a few points, but the bull run is intact. I have serious doubts that the pit traders will present in a platter shorts a graceful way to exit; some of the stocks which have a lot of steam to run are still languishing at low levels and I believe that it will be the short covering in the languishing stocks which will lead market to higher levels where it will be ripe for correction. On 9th of December I wrote a post where I said that I expected in the first quarter of 1998 the market to trade between 950-1050, I still believe that I'm looking at 1050 as my next target, and 1130 as ultimate objective. Al has asked me a question about where is the new support of SOX -- I think 298 on closing basis is the support, not even 305 or 301, I will be short on SOX below 298 for a trade till 290, looking at TXN and INTC performance, we'll let the trade run if 52 and 85 are taken out. IBM has taken out 102 which is the level I gave two weeks ago when someone asked if IBM is going lower when it was trading at 96, my clear inclination and bias was towards long side on IBM; I see potential in IBM to go higher. I also see possibilities of AMAT and other chip companies to go higher because all the companies have issued next quarter earning warnings and that should keep a lid on analyst beelining to revise estimates. Since most of the analysts had revised earnings downwards in December, now to wash off the egg from their faces they were equally eager to revise estimates upwards. If I'm in the shoes of CEO groove, the last thing I really want is the change of goalposts and a higher level of performance to be judged by people like Kurlak, who downgraded Intel at 70 and is now seeing the stock at 86. I think they are smart and keeping the expectations low, and this is setting up to become a nice next 3 months where lower expectations set a stage of SOX at 290-300 level from which it will make an assault towards April at 340-350 level even 355 will be unable to break the level set back to 320, receive the earnings of next quarter at that level, and if earnings beat lower expectations for which the stage has been set, we go higher. Now I will deal with the so-called manic heights, a term many a time used by shorts. I think post-earnings break of the market is not "manic height," it would have been if market had not tested 6900 and would not have made 5 genuine attempts to break through this shackle of 7500. December and January and all through last summer when we were making the case that Dow was a steal at 8000, this was the whole bottomline that there is a dearth of quality assets, and US is a growing economy unlike many of the soft-currency growth economies. Moreover, this market takes no prisoners...look at Oracle, look at Applied Material, look at Klic, look at ASND, look at COMS, these are not stocks trading at ridiculous multiples, these are stocks with genuine technology and are ready to change the face of this world so you better be out of the way of this hurtling train, otherwise it will carpet you. This thread has been very successful in calling the reversal of technology from 243, although we were not successful in identifying the break of SOX at 355, maybe it has something to do with our bias, but I think its nice to see things coming back up and some good basing action of technology stocks.
One of the finest causes in the last 2-3 weeks is the classical long on BKX. This banking index was recommended long at 704 and WFC at 295 along with MEL; we had a tremendous run on this banking index and now trading at 773 victory is sweeter because it coincided with this short call and an increased call on market decline by the market experts. To be honest gone totally against the advice of some senior analysts, even Raj, my whole theory of going long on banking was based on only one small point; first of all it was sitting at a critical support but for that I have very little regard because I'm not a chartist and had I been a chartist I would not have called a reversal at that juncture or for that matter SOX reversal at 243 or SOX break at 280 which led SOX down to 243. All these levels are technical support levels or resistance levels but my calls are based on applying the big picture on these supports and levels and deducting analogies out of it, so for banking it was very clear: If US banks have come down from 784 to 690 on heels of ASEAN crisis, there is no reason for this whole sector not to recover if ASEAN are breaking through the critical resistance of 9000, or NIKKEI taking out 16200, so in my mind it was clear that the biggest threat to this whole financial system was due to meltdown in Asia which was coming from violation of Basle adequacy ratios. If 14000 would have been breached, most of the Japanese banks were in violation of the Basle ratio, and I had the level of 14000 much more generous than street level of 15000 because I knew that the Japanese have $400 billion in Treasury bills on which they are making exorbitant profits, and due to these exorbitant profits, instead of selling these T-bills and creating a bigger problem they would use it as collateral and most of the shorts were again wrong on this point, they were propagating divergence theory, according to which Bonds will head north and markets will head South, it did happen for a week or two in October, but then finally the market went north and north, because the markets are not based and run on skewed logic of destruction, they are based on constructive elements which come together like a jigsaw puzzle...once the pieces were in place, we saw shorts completely bamboozled with this north north incline, then they thought that 1000 is not breachable and the chartists made a grave error of shorting the market at 980/990 region because it was very evident that the market has a tendency to reverse from 990. Again, that was an error...you don't short the market making new highs and approaching key resistance levels, that shows a lack of experience and also you don't call for intermediate shorts; there is no system in this world that can give you that kind of levels, intermediate shorts on virgin territory is again a fluke. It is this that the fundamental picture is overwhelmingly superior than anything else to call the market. I believe that levels which are supports, if broken, become resistances, and those are the kind of levels one should clearly look for on the way up and on the way down.
If you ask me what is the single most resistance like 945 in our previous 980 leveled market, I would say that 992 is a big support...a level which has been taken out in face catastrophic and pessimistic news coming from Asia and Brazil, so Asia is built in the market, most of the pessimism is built in the market, the earnings consequent to 6 months crisis in Asia are coming in line, so why should we consider it the habit of the market to go down to 7800 because we have to have a correction for the heck of it. On a down day like this in Asia I can easily say that market will come back to 992, of which I see a very strong possibility. I see a strong possibility of BKX testing 758 before taking out 784, or for that matter, FHX testing 355. But these are trading objectives; for a core investor and a core holder of assets, one has to see is the bull trend alive? Does the bull trend have the fundamental to propel the market higher? And at the moment I have no reason to believe that the bull trend is not intact. I take my post on this thread to educate myself and to share finer technical points based on which I make my calls in the market with highest possible degree of accuracy, like I have done over last 3 months, or sometimes when markets are going through interrange seismic movements which have little bearing to the big picture, we do lose a track of the big picture and stay with stocks like TXN and INTEL for which I receive enough of abuse and flak, but in context of big picture when we lose sight of certain unreal event, like cutting off INTEL to hold by Karluk, then at least we do lose a battle but we win the war when on fundamentals these stocks come back. Just a few weeks ago when I called MSFT to go long at 135 level on this thread, the same time others were calling short...again, the big picture, that is MSFT stepping back on its dispute with the Justice Dept. and a split announcement provided enough of fire to the stock to propel ahead. So lets never look at levels, look at the fundamentals of the market, look at corporate earnings growth, the kind of long bond yields 8% will be revised higher even to maybe 10%. I have written 4-5 months earlier that Europe is awakening from its slumber. Big buying will come from Europe from technology, I have been following closely people who have been calling AOL short, AOL new 1.2 million members give you some kind of indication for future of NWX, stocks like CSCO, ASND, CS, COMS and others.
Above note is a ritualistic note to the thread and this is the kind of note I make in one go just to revitalize my unshakable bullish stance, expose myself to critics, let them take a shot at me if there is a basic flaw in my approach, so that I can correct my assumptions if I'm wrong. The purpose is to educate, to share a piece of my mind; it is not important for me whether I've made money or not, that has never been the purpose. The purpose is that are we learning the intricacies of the markets the right way? Such is the complexity of the markets that this education is a lifelong process and for me this will continue from cradle to grave. I like to share with my friends like Tim who have been more right than me on ASND saying "Iqbal take care on break at 40", or Karun who was prophetic on stocks break below 355, so sharing exchanging and talking loud that is the whole objective and this will continue on this thread...a thorough lively discussion on issues confronting the market and that is the reason this thread will be a place people visit even for its most unconventional wisdom but the originality and innovation will never be in short supply. |
