To: Boca_PETE who wrote (7800 ) 8/17/1999 12:56:00 AM From: marc ultra Read Replies (4) | Respond to
Pete, what I recall was that Bob now considers the Dow the important index as this late cyclical strength has taken over as former high P/E leaders have failed to maintain momentum. I believe he was looking for a move by the Dow to the area of the July 16th highs and possible marginal new highs. He mentioned a 3 step process in reaching an inflexion point which was 1)getting in general area of the top which would in this case assumedly be low to mid 11,000's which I guess might correspond with the May highs which is when we reached the 11,100 area. 2)getting up for last time to benchmark highs-I am not sure If this would correspond to the July 16th highs or perhaps to a final test with marginal new highs which we might be in now. 3)change in market direction which I would translate as inflexion from up to down in current case. He said when we come out of the current short term correction, the Dow, the S&P or both should return to within 1% of the July 16th high. At the close today we are about 1.5% off the July 16th Dow high of 11,209.84. I would also note this market has been pathetic for a market that might have staying power with volume(today lowest of year), breadth and down versus up volume showing no signs of a market wanting to go up to greater things. As to Bob's model at best I would say for sentiment is neutral, valuation remains high with rates over 6%, monetary may now be turning negative and economic the only indicator that might clearly be positive. I obviously don't know the specifics of Bob's proprietary model but seems to be a problem at this point. If you are depending on a monetary indicator which is neutral to deteriorating and the economy then I would think the Fed has us in a no win situation. If you are depending on continued economic strength along with fledgling help from a monetary indicator then if the economy remains growing relatively robustly we are now at the point where the Fed is going to continue cutting the money supply based on their forward looking concerns of rising inflationary expectations. As we test and maybe exceed a bit the highs then what on earth is going to support us as we again approach 27-28% multiples again. I have to think that while it is possible Bob may stay with the market as we reach Nd maybe exceed a bit the July 16th highs preparations for the opposite case should be taken and a plan for what to hedge, what to sell and what to ride out on should be thought about now if one has not already done so.
