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

To: Matthew L. Jones who wrote (31170)	10/23/1999 11:49:00 AM
From: HighTech	Respond to of 99985

Weekly Market Perspective Richard E. Cripps, CFA Chief Market Strategist October 18, 1999 Guessing the Bottom There are generally three types of approaches used to hypothesize a market bottom. The first type, which we refer to as valuation, rationalizes market P/E ratios, earnings prospects, level and direction of interest rates, inflation outlook, and history to seek a sense of "fair value." Once established, risk/reward parameters are developed that, in turn, provide the basis for buyer conviction. The S&P 500 is trading at 25x 1999 and 22.8x year 2000 EPS estimates. We believe these P/E levels are misleading with the two-tier market structure that exists. The top-50 market capitalization stocks in the S&P are trading at 30x while the remaining 450 stocks are at 18x this year EPS estimates.> For perspective, the market's correction low of last fall saw P/E ratios on the 450 stocks in the S&P drop to 14x forward year EPS, which compares to approximately 16x currently. There are important differences with last year though. Consensus economic and earning growth projections were sharply lower as were interest rates and inflation expectations. Importantly, the Federal Reserve was aggressively easing monetary conditions versus its present policy directive to tighten. The S&P 500 would need to drop another 10% from current levels to reach the valuation lows of last October. Technical analysis is commonly used to sense the downside risk in the market. While this approach is fraught with wide-ranging interpretation, it nonetheless is insightful for understanding the internal dynamics of the market. Market breadth has been declining since April 1998 along with a narrowing list of stocks reaching new yearly highs. This "nonconfirmation" is evident in the disparate returns of the market indices that measure performance. For most technicians, this negative breadth condition must begin to improve before a meaningful rally can occur. Technicians also analyze price movements and trading volume to sense relative strength or weakness that, in turn, provides a ladder of support or resistance levels. Looking at the Dow Jones Industrial Average, recent losses have taken it below its five-month trading range, with longer-term support around 9700, or about 3% below current prices. The NASDAQ Composite, presently at 2732, has support at last summer's corrective low of 2500, or 8.5% below its current price. In reality, while support or resistance levels are intuitively appealing, they are more like "lines in sand" that are easily washed away. The final approach has been the most reliable in this long-running bull market. It minimizes valuation, ignores technical analysis and, instead, looks to the market's psychological condition. Under this scenario, psychological pressure builds until it is released in a spectacular market decline. The climatic selling episode "washes out" speculative excess with intense volatility and heavy volume. Inevitably, the selling activity gets overdone and creates a vacuum that is quickly filled by opportunistic investors. Losses last week in the market were among the worse in history and the ghost of October past will escalate pressure on investors. Whether there is enough to trigger a panic sell-off will likely be played out against economic statistics that will be released over the next three weeks. The equity market is looking for interest rate clarity. If next Tuesday's CPI or the following week's Employment Cost Index (ECI) or early November's NAPM and Employment statistics prove to be as bad as last Friday's PPI report, expect a chance to be opportunistic. Putting all of our approaches together leaves us with a view that the market has more downside of 5%-10%. This risk is acceptable, in our opinion, to be a selective buyer of stocks. The economy is growing, as are profits, and inflation concerns are cyclical rather than the more troublesome raising of long-term inflation expectations that would compress valuation. What makes this market correction significantly different, in our view, is that the Fed will not be as cooperative in its recovery. This will limit overall market gains in the near term and will make stock selection challenging.

To: Matthew L. Jones who wrote (31170)	10/23/1999 11:55:00 AM
From: donald sew	Read Replies (3) \| Respond to of 99985

Matt, >>>> Didn't you have class one sell signals yesterday morning? Maybe it was someone else. What is a "class 1" or "class 2" sell or buy signal? Is it generated by some particular system? In all of my reading, I haven't come across the "class" buys or sells. I was wondering if it is P&F generated or what <<<< I have probably stated how my class signals work, maybe a hundred times over the last 2 years. I developed the system myself which is not linear and unconventional. It attempts to measure the extremes in either the overbought or oversold region and is only for the short-term(1-5 days). It is normally only good for the initial move and in terms of the DOW a minimum of 150 points although it did get as low as 75 once in 3 years. For a $50 stock it is normally good for a 1-3 point move. My signals work on a BUY-IN WINDOW, which I know for sure that I have mentioned over and over. The CLASS 1 SELL signal rang on FRIDAY and that was around noon when the DOW was down about 125, if I recall correctly. The sell signal BUY-IN window is from that time until the next days highs. The selling could start immediately which it has on some occasions or wait till the next day. Keep in mind that it is not linear and is trying to nail the top or bottom. So the BUY-IN window is normally a 24 hour period. I wish I could get it closer than that, and if I did I would not be posting on SI but be on a mountain for the rest of my life. ggggggggggg. There are some clues which narrow that 24 hour period, which I do not mention all the time, but basicly its 24 hrs. And there is a difference between a CLASS 2 and a CLASS 1. seeya