Yes, there are unhappy traders out there. I am sure many lost money as "unexpected" as this came to them while they were at the top.
I do not see significant technical damage to the market...yet. If the market were to turn around now, I think the market can trend up once again in the not too distant future after the market recovers from this price shock. Perhaps in this sentiment driven market, at the first sign of a bottom, they will rush in in an attempt to recoup losses. In this scenario I am comparing this to gamblers at a roulette wheel that had just lost a good amount of money in their exuberance and now feel the need for an opportunity to win it back. However, if we encounter additional selling, which is entirely possible, then there will be more significant technical damage that can be of a longer term nature. Attempts for the public trader to get in and make it all back will fail in this scenario. Either way I think we are in for more volatile times.
As we can see, the fundamentals do impact the market over the long run. But I cannot call this "efficient" in any form of the word. Some stocks demonstrate the efficient pricing in of fundamentals. Other stocks do not demonstrate any concept of the pricing in of fundamentals over a period of years. Much depends on the type of market participant that is attracted to the stock. The market itself comes to terms with the fundamental backdrop in stages, which I have been referring to as stages of denial, as we have seen.
But the market bull cycle will not end without the energy imparted by emotional irrational exuberance as demonstrated by for instance the Internet stocks. Cannot call what has been demonstrated by the Internet stocks as anything that even comes within the ballpark of efficient pricing in of the fundamentals. Meanwhile, many traders have made small fortunes and others have lost allow of money during this runup and its subsequent sell off.
The small cap stocks are looked at for two reasons. One is to find value in a market that is well overvalued. Another more significant use is by traders looking for that next speculative play. No sense of value oriented participation here. When the NASDAQ sold off for the n-th time and money left this group of stocks leaving much technical damage in its wake, the speculators needed somewhere to go with their money. They went to the small caps. There are many small caps out there. There is no "industry leader" for the small caps. This is where the more speculative money went. When fund money propped the prices up of NASDAQ larger cap stocks, some the bellweathers of their industry, the speculative money now had one place to go. This place in the market also had leadership, not only for the tech sector, but also for the market itself. This came in the initial form of some of the first tier stocks which then were surpassed by the more speculative issues that took up the position of leading the market. The speculators bid up a collection of high tech stocks as a result. The fund money probably sold into the speculative fray. Evidence of this was in place one or more weeks earlier on some of the visible stocks of that sector.
I want to note here that the type of market can be determined by what kind of stocks are leading the market rally. This can be the defensive issues such as GE, the growth stocks like the techs such as MSFT or INTC, the stocks that have taken on glamor status over a period of time due to their product and earnings growth like DELL, or the smaller cap stocks with no earnings history like AMZN but are overnight darlings of the market and just as quick old news, for instance.
This last rally were lead by techs that have been demonstrating only a shadow of their former high earnings growth followed by the Internet stocks that have no demonstrated earnings history. The stocks that saw most of the action through this period of time were of companies that had no positive earnings growth history except for losses or spurious profits. CMGI, LU come to mind here. Other money apparently stayed with the defensive issues.
In hindsight, I can see that scenario can only lead to a short term rally. The extent will be determined by the number of participants that are willing to play in the speculative issues which is participation in the market not based on fundamentals. IMO much of the longer term money including fund money will not participate in this type of market play. They went to the defensive issues. However, I am surprised at the amount of fund money that is willing to play this game. But then this has been a trend with mutual funds in their highly competative game to win the attention of the public dollar.
Comments welcome!
Bob Graham |
