Berney; RE:" Rotation "
>It doesn't seem terribly unusual for a stock to recoil 50% of an
explosive gain, with no significant deterioration of underlying
fundamentals. I don't think missing a mean estimate by a penny
constitutes a deterioration. Obviously, it became overvalued and the
big boyz use this as a reason to rotate out, but the rotation has
been going on for a month...
Yes - I agree completely with your assessment, BerneyDude.
I just completed my analysis of the indices - the DJX.X in particular - you can see the UpTrend actually climaxed 20-MAR, whereupon the rotation out began. I've seen this pattern of profit - taking and rotation in the second half of the third month of a good quarter before.
Remember, we were coming out of a real debacle at the end of '97 - and everyone was taking so-called defensive stock positions, like drugs, chemicals, and large-cap DOW/S&P bellwethers. Remember that bizarre situation where the cost of capital was going down, down, down - but the market wasn't responding - everyone just kept buying more and more bondz. Then there was this sustained divergence between the DJX/OEX and the NAZ : There was a tremendous surplus of liquid capital - we were all in cash - everyone was too freaked to put it into the NAZ (we were just burned by INTEL, P/E=18 for goodness sakes!) -- that's why, I believe, the DJX and OEX just went straightline ballistic for a solid quarter --- it was full of fuel and ready for launch, baby!
Some of them will stay fueled, for sure. Some, like MRK - all of a sudden the public realizes that the MM support is gone, and wow - miss by a penny and watch that first step - it's a lulu ! (You know they'll be coming back in to MRK - just not right now).
They (MM's) began to rotate out before earnings and before the end-of-quarter because, why gamble? and anyway - there's all those SmallCaps and TechStocks to play with. We might see a divergence in the other direction next -- ie., the "defensive stocks" go back to being turtles, and the (now dormant) go-go stocks get lively (?) As Gersh says, it's gotta go somewhere, dudes.
According to my chart, Berney, DJX 9200 was a top.
-Steve |
