Greetings. Mkt is looking worse to me everyday. Adv/decline line continues to trend down as the mkt moves higher. New high/lows are also diverging. TRAN and UTIL are diverging from SPX and INDU. Will be looking very seriously at selling my NE and UNT over the next couple weeks. Their business prospects continue to improve but if we see a serious mkt decline or a slow grinding bear, the drillers will get wacked w/ everything else. Earnings will be fine, but multiples will contract (this will be hard for many to understand in all sectors. In a bear, investors stand around puzzled and say.... "Why is my stock trading at such a huge discount!!! I'll buy more", then it goes down again and puzzlement turns into frustration. I think many long timers on this thread experienced this in short form during Sept-Feb) The drillers have historically traded around 10x or 8x earnings when you didn't have a red-hot equity mkt. 10x NE would $19. Because their business is so strong and future looks so good maybe they get a little more and NE might trade around 25. However, if the drillers head up strongly like I think they will over the next 2 weeks as managers throw money at anything that appears to be moving and undervalued and the mkt internals continue to deteriorate. If NE gets back to or slightly above its old highs, I will dump it. I will look to buying it back later at a big discount IMO. I caution all to not to get too greedy on this driller run, we will not see the bloated values of the past IMO. Good luck!
Bearish Sell signals:
1. adv/decline line has diverged form major ave
2. TRAN and UTIL have diverged form SPX and INDU
3. NASCRAP appears to be putting in a head and shoulders
4. Internet stocks continue to explode everyday (these trash stocks are a sign of rampant specualtion. MM can't find real value in the mkt so they are throwing money att hopes and dreams)
5. Bull/Bear ratio still firmly in camp of Bull
6. Gold has turned around and unptrend is intact(notice it was down on Fri because of a false rumor that Belgium would be selling gold. Belgium came out after thee close and said "Nope, untrue." Compare the XAU and TYX, they look VERY similar. XAU is leading.
7. TYX appears to be heading up. Don't be fooled by Thurs & Fri's slight pullback below 6%, notice we closed up near the open on Fri back near the high of the day... a strong reversal signal.
8. $ continues to get pounded by Mark as EURO approaches. Japs are defending Yen and will continue to pump it up. Money will flow out of US as dollar declines.
9. 60% of US households are invested in the stock mkt..... the most in HISTORY.
10. Mutual fund cash levels are at a 10 yr low marketgauge.com
11. stock mkt is everywhere. I have noticed over the past yr more and more mutual fund, and brokerage commercials on mainstream TV, radio and print. There was even an article in Rolling Stone about the "roaring mkt"
12. earnings yr-over-yr are declining
13. the leaders are breaking down.... BKX (looks ot be putting in a head and shoulders) NASCRAP is topping off. KO and G have both broken down
14. Insider selling has increased to a record pace over the past 3 months. G insiders have been dumping stock right and left.
15. Signs of inflation: wage protests detailed in newspaper recently as workers complain about CEO's stock options and their low wages, real estate mkt is on fire. building has picked up markedly everywhere, I think you all know about the increase in oil prices that is coming, nat gas prices are up, food prices will be increasing cause of El Nino, gen asset inflation of stock mkt and real estate. IMO, Fed would have acted long ago but was afraid of collapsing the mkt, now they can't do anything as the mkt runs out of control or they will be blamed for the ensuing disaster. I think their just hoping it will correct itself and not implode, hence the article in WS urinal
16. X-chge seats peaked about 2 mnths ago and have been trending down.
17. oils are always the last stocks to move in an aging Bull (we're seeing that now)
18. no need to discuss P/E levels at all-time highs and div yields at all-time lows
19. Now for the touchy-feely stuff:
a. bull on the cover of newsweek
b. bull on the cover of Barrons this weekend
c. AFC won the superbowl
d. hemlines came down this yr
e. CNBC's ratings have exploded over the past 6 months.
f. CNBC is now being shown in Times Square on
the Sony big screen
g. man friends of mine (against my advise) have taken out home
equity loans over the past 3 months to put it in the mkt.
h. Bill clinton commented on Thurs that "his opponents can't
compete w/ his ideas, afterall look what we have... roaring
economy and a roaring stock market."
i Elaine Garzarelli cam out Fri and is extremely bullish
(contrary indicator) and made arguments for a mkt rise that
I've read about economists making about why the mkt could
go to even more lofty levels before the 1929 crash
j. Bull mkt tops are made at the height of euphoria when all anyone sees is up and good things for the future (kinda where we are, notice that every analyst is looking ofr around 10,000 this yr, and then higher later. NOBODY sees any problems. Valuation is rationalized away like I used to do when I was a kid explaining to my dad why I spray-painted a wall in the house.... "it needed color, dad. I didn't mean to. If you look up you can't see it."
There are more, but I won't bore you. I think it is better to err on the side of caution in the face of all these indicators and not be greedy. We've made a lot of money over the last few yrs and haven't had a real bear since 73 and 74. We're due, and I refuse to get caught being greedy.
All IMO of course!
-Lucretius |
