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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Matthew L. Jones who wrote (28882)	10/8/1999 8:35:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 99985

Matt, there is ALWAYS money on the side-lines. as i have argued in the past, that doesn't guarantee anything at all. just to give you an example: the Japanese bear market that began in 1990 and resulted in a 60% decline for the Nikkei, was accompanied by a veritable MOUNTAIN of money on the sidelines. in fact i believe no other bear market can hold a candle to that one with regards to the amount of money sitting on the fence and watching it unfold. the question should not be, is there money on the sidelines, but is it likely that this money will find it's way into the market. so we have to look for reasons to put money into the market...and it is very hard at the moment to find compelling reasons. i sometimes get the impression that stocks are being bid up for the mere sake that they are going higher. nobody seems to care much about the fundamentals anymore, as the exorbitant valuations would suggest. some of the stocks which have had incredible runs simply are confronted with the law of large numbers by now. if for instance E-Bay's valuation would continue to expand at the present annualized rate, it would take only a few years for it(i believe 3 or 4) to attain a valuation equal to the U.S. GDP. you will probably agree that that is rather unlikely. sheer momentum, short covering and delta hedging of options are what drive this market at the moment. this may continue for a while, or it may not. the main bullish argument, namely that Q3 earnings will be outstanding, doesn't take into account that a) interest rates are far more important to stock prices than earnings and b) that the market as a forward looking discounting mechanism must have these earnings priced in by now. the recurring buying panics in certain sectors and the high degree of volatility all suggest that some kind of big adjustment is in the works. Steven Leuthold has recently said that according to his research,the current degree of volatility hasn't been seen in 25 years. this must mean something, and most likely it means that the market is very nervous, pulled back and forth between the desire not to miss the next leg up and the fear that the party could end anytime. at the moment it seems as though the market is ignoring the deterioration in interest rates, and that is imo dangerous. so if one plays whatever upside remains from here, it should probably be done with an eye constantly focused on the exit. regards, hb