Nasdaq 100 futures down about 15 points this morning....will we get the second shot today????
here are a few more thoughts....(I'm not so bullish anymore).
Needless to say, things have changed in the course of the past week. The long bond is now over 6.00% again and it has stayed there. Earnings warnings from some of the technology sector's heavy weights were expressed and earnings revisions are in the downward fashion. All three of these could spell trouble.
On Wenesday evening Intel surprised Wall Street with a warning that its 1st quarter revenue will come in 10% below their forecasts due to weakness in the personal computer segment of their business. That set the stage for an ugly Thursday. Tech stocks and many others were sold off quite heavily.
The NYSE tick during Thursday was below -1000....a figure that demonstrates the extent of the selloff. After that performance, the market got a little more bad news. Motorola announced weakness in their businesses in the 1st quarter. this announcement came after the bell on Thursday. It seemed as if another round of selling was in store for Friday....but as has been the case so often in this bull market, the market shrugged off Motorola's warning and instead made an impressive comeback on Friday...only to learn of more trouble after the bell on Friday.
Compaq announced that it will only break even for the 1st quarter...they say that their inventories are high and they have seen a slowdown also in the 1st quarter. Compaq and Dell were down heavily in after hours trading on Friday, but then Dell came out to say that they aren't experiencing the troubles that Compaq is.
Is this slowdown part of the what the Asian crisis...or has capacity gotten ahead of demand...whatever the case, earnings estimates for these tech companies (INTC, CPQ, MOT) are coming down and by quite a bit, also. Compaq was expected to earn about 0.37 this quarter. They weren't very positive on the 2nd quarter also. Slowing or even negative earnings growth will bring the bull to a grinding halt , if indeed it becomes a trend.
Another problem is the sudden uptick in interest rates on the long end. the bond market is saying that maybe inflation isn't as dead as it was hoping.
The bull market has advanced so greatly because of expanding multiples, due to a drop in interest rates and also due to sustained earnings growth (double digit, at times). Up until now, any correction, was a buying opportunity because both of these factors were still intact throughout the correction. It is possible that the next correction may not be as kind because of the early signs that is being seen. If more and more companies, especially the large ones, begin to preannounce slowdown in earnings, the market could be in for a very rough ride....but this is a BIG IF.
In the February 08,98 newsletter, the following about Alan Greenspan's
testimony to congress appeared in the newsletter:
<<So what about the effects of Asia on the 1st quarter?
Looking at the way stocks have responded in the last week, one would seem to think that the worst is over...but I want to remind you of what Alan Greenspan ( the head of the nation's central bank) said in a prepared speech before the US senate Committee on the Budget on january 29, 1998. Quoting from the transcipt:
"Second, to date, we have as yet experienced only the peripheral winds of the Asian crisis. But before spring is over, the abrupt current-account adjustments that financial difficulties are forcing upon several of our Asian trading partners will be showing through here in reductions in demand for our exports and intensified competition from imports. All of this suggests that the growth of economic activity in this country will moderate from the recent brisk pace. ">>
Maybe some of the technology companies are beginning to feel "the peripheral winds of the Asian crisis"....
A few weeks ago in this newsletter, the following appeared:
<<In February 3rd's Special Report, the newsletter said:
<The consensus estimate for the Dow 30 have come down in the past 4
weeks...usually not a good sign but this number fluctuates. Currently, combined earnings of the dow 30 for 98 is expected to be $465.09 ...(four weeks ago it was $477.88). >
Well, at the end of this week , the slight downward revisions continued.
The consensus estimate for the Dow 30 for 1998 now stands at $462.18, which means that although the Dow has climbed 6.39% in the first seven weeks of 1998, the earnings revisions of the companies that make up the Dow has come down by 3.28%...not a pleasant divergance. This does bear some watching.>>
Well, this week the consensus is $460.82 and yet the Dow continued to climb , although not with the grace that it did with in February.
what to do....what to do.....
Having stated all of the above, it is still important to recognize that some of the indicators the newsletter uses are still showing strength in the market. The new lows on the NYSE are sill below 40 and except for Thursday, was in the teens the rest of the week. The new highs are doing pretty well also. If we do get into a euphoric phase, the new highs could expand into the 400's....
The question is, do you hang on waiting for euphoric uphot or do you start to use any further strength to build up a cash position? It may depend on how much more trouble their is in the 1st quarter reports. It, of course, doesn't hurt to start getting into some cash....just want to see some indicators saying so, though. There are not right now.
Just some thoughts....
Paulo
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