What market bottom fishers are looking for. Note that the OSX already has experienced the kind of capitulation that has yet to occur in the overall market.
From the street.com
By Dave Kansas
Editor-in-Chief
It takes no expert to understand the truth. This market isn't healthy.
James J. Cramer may declare the market's rebound in the last half-hour a
victory, but don't plant the flag yet.
Despite the last-minute bounce, stocks did not get off easy. Small stocks,
again, took the brunt of the damage and breadth was terrible. And, as with
other rebound attempts throughout the session, the final spree was very
narrow. Exhausted bulls are fighting with all their might, but the
much-anticipated bottom has not yet arrived.
Throughout the year I've focused on Intel (INTC:Nasdaq) and Japan. Intel,
while off its lows, is still well off its record levels of earlier this
year. Japan, despite the modest excitement following the recent government
shake-up, is still a basket case. And patience with emerging markets is
wearing thin, with Indonesia and Russia looking equally nasty.
With the Dow taking another nasty pratfall, investors are looking for a
chance to buy the so-called dip. Finding a bottom is an art, and it
requires many different things. Essentially it is impossible to predict the
bottom, but I polled some folks to find out what sorts of things they are
searching for as they watch stock prices cascade lower.
* Bottom-fishing: We're not there yet. The kind of fear associated with a
bottom has yet to surface. Even in the midst of Tuesday's downdraft,
GeoCities (GCTY:Nasdaq), an Internet IPO, managed to open at 33 -- well
above its offering price of 17. In really nasty downturns, IPOs get
shelved, delayed or canceled. Where could that mixture of fear and
intensity occur? Take a look at Dec. 31 closes for the major averages.
We're still a few percentage points away, but the elimination of this
year's once-solid gains would inject a nifty level of terror into the
market.
* Watch the bonds: Back in October 1997, the first true indication of a
turn came when bonds began to sell off. In typical markets, whatever that
means, bonds' rise bodes well for stocks. But bonds have taken on a
different tone in the past few months -- as they did during the frenetic
October 1997 selloff. Bonds have replaced gold as the haven in a storm.
Nervous investors from Asia and the rest of the world have parked their
assets in bonds, waiting for the right moment to re-enter the fray. When
they do re-enter the fray, they will first sell bonds. Therefore the bond
market needs to show real weakness before it's clear that investors are
diving back into U.S. stocks. Late Tuesday, bonds sold off ahead of the
late, index-focused rally.
* Corporate repurchases: Again, back in October 1997, on the Tuesday
following the Monday market closure, IBM (IBM:NYSE) weighed in with a
high-profile share-repurchase announcement. We have not seen that same kind
of news as yet, despite the sharp drop in prices among many bellwether
stocks. Keep your ear out for news from a General Electric (GE:NYSE) or a
Dell (DELL:Nasdaq) or a Merck (MRK:NYSE) announcing a major
share-repurchase initiative. (James J. Cramer informed me after this was
published that Merck announced a $5 billion repurchase on July 28. So if
they, for some reason, announced another buyback, then you'd have a very
bullish indicator.)
* Japan: Reading this past week's edition of The Economist, one brief item
shocked me. A Japanese diplomat was fired for saying things too kind about
the U.S. concerning the Okinawa military base problems. The story indicated
that Obuchi and others are not pleased with perceived U.S. bullying on the
economy. If that's so, then it's difficult to see how an Obuchi-led
government will make the economic changes that the U.S. and other nations
are recommending. As I have mentioned before, Japan is absolutely vital to
this market. The recent election there was more problematic than anyone has
admitted and that spells more trouble from Japan, not less. Radical change
from Japan is needed in order to shift Asian-driven negative sentiment.
* The media: More panic in the streets, and less of this
calm-as-the-day-is-long type coverage. Some more front-page stuff in The
New York Times or The Wall Street Journal. Problem here is that these
publications blew it out last week, and they will be less inclined to do so
quickly again. That means we need to get lower in the next few days so the
Sunday papers and the national newsweeklies really lay the bear-market hit
on us coming into next week.
* Volume: We need the eye-popping volume associated with a true bottom. At
that time, buyers and sellers converge with a special ferocity that makes
the exchanges quiver. We have not seen this kind of activity thus far, and
given the steady increase in volume in the past 10 months, it will take
probably close to a 2 billion-share day on the New York Stock Exchange to
indicate a special kind of frightened bottom. At midafternoon Tuesday, with
the Dow Jones industrials down 250-plus, fewer than 500 million shares had
traded. That's not pell-mell activity.
* Precious metals: Another leg of fear would be a surprise move into gold.
This metal has not acted as a store of value in some time, but real fear
might make people return to the oldest saws they can uncover. That would
mean gold.
* Fund redemptions: More news of funds getting redemption calls, coupled
with a rise in money market fund assets. The money market fund asset
reports come out on Thursday, and they should show some hints of movement
by fund players.
* Presidential resolutions: Sad to say it, but the Clinton/Starr battle
needs to move off the front page. Hard to get traction before the Aug. 17
testimony of Clinton. We may get a bottom, but accelerating through that
mess -- absent some sort of pretestimony resolution of the crisis -- will
be most difficult.
* Financial stocks: Right now, as James J. Cramer pointed out, stocks like
Citicorp (CCI:NYSE) are in a "damned if they do, damned if they don't"
position. Rates will go higher if people sell bonds to get back into
stocks, and higher rates aren't great for financials. Rates will go lower
if damage is so nasty that there's no place to go but bonds. In that case,
Citi and other financials suffer with the rest of the market. A sharp turn
upward by the group -- especially the brokerage firm stocks -- would
indicate an end to that double-negative thinking.
* Another bull to the bear camp: Will Jeffrey Applegate at Lehman Brothers
capitulate? How about Abby Joseph Cohen at Goldman Sachs? Too much status
quo among the punditry, not enough shifting to more cautious positions. |
