Good Morning Sonny, Ann, Billwot and all: I have been trying to send out this special report to you and the others here who receive my 'Financial Intelligence' Email report, but I could not get it out overnight due to server problems, so I am posting it here as it does have some potentially longer term positive implications for Intel. Here's tonight's report:
Can Lightning Strike Twice - Same Time, Same Place?
Maybe, maybe not. What's being referred to here are the eerie similarities between August '97 and August 1998. Whilst it is highly unusual for Wall St to trace out such a similar pattern, year over year, stranger things have happened. Therein, lies a potentially huge opportunity during this coming week, no matter which way this drama may unfold.
The market is running a little ahead of last year's schedule, (on the downside), and therefore we may be about to experience the mother of all rallies, that could easily rival the mega-rally of last September 2, when we experienced a 257 point up-move in one day. Funny how the market rallied right off that 'exact' same number on the downmove earlier this month. Is the market trying to send us a message? We'll have to see, but we must remain vigilant.
This week could turn out to be the most important week in contemporary history. Readers of my 'Financial Intelligence' report, will know that comparisons of the '94 stealth bear market have been made to the experience of the last four weeks. At the end of 1994, the new highs new lows numbers were so shockingly negative, that everyone I talked to without exception, about the prospects of a huge rally, responded with words such as: 'Impossible, under the circumstances, especially given the weight of such negative internals and breadth'. Well, we all know what happened next: The market embarked on a 2000 point non stop uptown express, without pausing for much more than a 100 - 200 point correction along the way. The other key similarities to that time were that Wall St was almost universally negative.
This is not to suggest that we have quite reached that point yet, but the massive reversal in sentiment that has taken place in less than a month, is almost unmatched. An increasing amount of bearishness has crept in, especially late last week and this weekend, where the consensus now seems to be that we're headed for somewhere in the region of between here and 7500. Maybe, maybe not. But whenever Wall St gets universally bearish, it's usually a precursor to a surprise rally that can be breathtaking at best.
Another argument in support of this is, that when a market breaks straight from its highs as this one has just done, a knee jerk rally back to re-test those highs, is a technical requisite that somehow always manages in some way to play itself out. The smell of a forthcoming rally suggests it could start as soon as tomorrow or by the end of the month at worst. One reason an October 28 type turnaround feels at hand, is because some indicators are so close, but have not quite reached enough of an oversold reading for such a rally to unfold in earnest.
A further important point worth making: In spite of the common theme of recent days being that the market was lacking support in some sectors, those sectors can turn from a synchronized downdraft to an upward explosion in a New York moment. It is worthy to be forearmed and forewarned that at the nadir of a number of previous anxious turnaround 'moments' it has felt very much as if market lever has been suddenly thrown from bearish to bullish, with the attendant panic buying that usually catches hold immediately thereafter. To gain support for this idea, one could well ask, how is it that these events change so quickly, with such dramatic effect? The usual explanation is that too many investors become comfortable or complacent being short the market and amateurs try to get in on the game, at the bottom. In addition, when it begins to get widely telegraphed that a number of Mutual Funds are as much as 30 to 40 % in cash, then conditions such as these are ripe enough that they can fuel awe-inspiring up-moves.
The fundamental potential for a rebound, resides in the logic of sell the rumor, buy the fact. We got a taste of this the day Monica Lewinsky testified, with the minor rally that unfolded. If the most anticipated and hyped event in recent World history amidst the most frenzied saturation press coverage ever doesn't produce some opposite effect, what will?
Some other external forces that could positively influence such an event, might be: A stay on interest rates or better still a lowering of rates. Intervention to support the Russian and Japanese currencies and perhaps a massive takeover.
A number of positive developments were definitely in evidence on Thursday and Friday. Firstly, the emerging markets were so bombed out that they started to rally on their own, without waiting for Wall St to lead them higher. In particular Mexico and Brazil started out and were followed Friday by most Asian markets and then Europe, but also Russia a fact that was lost in most of the rumor and innuendo that flowed forth all day regarding the overblown events there.
The Yen also put in some efforts to trade higher and managed a rally of sorts. The Ruble meanwhile recovered 80% of its weekly losses in the face of massive negative effect to try and break the currency. And finally the Dow managed to close over 8400 following concerted efforts to break it below that number. When, it became obvious that they could not break below that number before the close, put option premium values collapsed as put holders became more and more nervous of the prospects for a rally.
What could really set this market on fire would of course be an announcement Monday that a major European bank will make a rich buyout offer for JP Morgan. As reported by the BBC: "German invasion of Wall St? Rumors that Germany's biggest bank, Deutsche Bank, might buy J.P. Morgan lifted their shares on Friday". Click below for the full story:
news.bbc.co.uk
If Deutsche Bank bids $200 per share for JPM, it would be a real big surprise if the value of other US banks were not to rise sharply in sympathy with this unprecedented bid. Such a dramatic rise in JP Morgan's share price, should have sufficient positive effect to set a major rally in motion, as what has been lacking up till now has been the failure by the financial and banking sector to participate in any meaningful rally. If this were to happen it could set off a chain of events that could be highly catalytic in nature.
Amongst some other notable positives: Let's suppose you had been completely incommunicado for the last month. And the first thing you saw was a chart of Intel or Compaq or some Internet stock, you would be hard pressed to tell, (from their recent action), that any thing bad had occurred in the major market indices over that time.
What is really happening here? Since my mid-June article entitled: 'The Next Great Growth Wave', Intel has rallied from 65 to almost 90, CPQ has recovered from 27 to 35, Microsoft rallied from 84 to 120, Cisco from 80 to 105 and Internet stocks have soared beyond anyone's wildest expectations. With Amazon.com going from 40 to the 140's and Yahoo and AOL nearly doubling. Why have these leaders been defying gravity? The chief reason is because the Internet continues to grow at a phenomenal rate. But the real reason I wrote this article, is because I firmly believe that Intranets are going to be a large part of this next great growth wave.
Now, in the past week the reality of this notion is beginning to take hold with an initial force that has already far exceeded my own expectations. Internet, (and Intranet stocks), have taken off and now comes the announcement last week from the World's largest conglomerate, that GE plans to spend $5 Billion dollars to implement a Worldwide Intranet / Extranet network to service it's customers and integrate its offices around the World. If this is not the very strongest endorsement yet, that this new trend is not just under way but is poised for liftoff. Six months ago, when Internet stocks were much lower and Intranet stocks were as yet undiscovered, I highlighted an article from the BBC entitled: 'Intranets poised for takeoff'. Those Investors who purchased shares of any Internet or Intranet favorites back then have done well and many still believe that this is just the beginning.
Now perhaps, one can begin to understand why stocks like Intel are holding up so well in a down market. $5 Billion in Intranet / Extranet expenditure buys an awful lot of Intel motherboards and Pentium II processors for all those Quads, Eights, Twelves and Sixteen processor servers that are going to be needed. Not to mention all the other peripherals that will be required to complete this mammoth undertaking that eclipses all others in history.
In the event of a turnaround, these stocks can be expected to outperform the rest of the market, and we now know why, with good reason. We've seen this video before. It started in 1995 coincident with the launch of Windows. Remember how disc drive makers like WDC went from $10 to $50. Newsflash, we may be in for something of a replay. The Disc Drive makers are is already up 30% from their August lows, in a 'down' market.
So all these facts are among the many positives that are apparent under the veneer of an alleged bear market. Politics aside as far as can be recalled, each and every one of the President's addresses to the nation, has been followed by a sustained market rally. Will the same happen this time? Only time will tell. But now the bloodhounds have found their prey, will the dogs be called off? The odds tend to favor it. Nothing is ever cast in stone and noone can accurately predict this outcome. Still in terms of real market leadership, they are still in the black so as Wesley Snipes once said: 'Always bet on black', or at least be prepared to, if the preferred scenario does unfold. If not, the worst that may happen is lightening strikes twice: I.e., we get a further selloff from here into expiration. An equally profitable opportunity for those who are prepared for either scenario to unfold.
If you would like to receive my 'Financial Intelligence' Email report, please send me a private message with the Email Address to which you would like it to be sent. Please note, that this was originally posted on the Financial Intranet, (FNTN) thread at 11.39 EDT August 16, 1998.
Have a good day
Rgds
Wiz |
