November 24, 1999
Market Comments
by
Don Hays
The market has done it. Quite often in my observations over the years, I
find that when I discover some huge, growing disparity in the market that
promises a change in trends out there in the future, that the market will
torment me endlessly until I begin to become ashamed to even discuss the
disparity. And that is the way "market breadth" has become. Of course,
the poor "breadth" has continued on the New York Stock Exchange since the
peak in April 1998, and each new high by the indices have shown extremely
disappointing action in the broad market. But Monday's market took the
prize. Could you believe on a day when the Dow was up 85 points, and the
NASDAQ Composite was up 23 points that there were only 903 stocks up on the
NYSE, with 2203 down? THERE, I said it. I talked about market breadth. I
don't care if you went to sleep.
That is what the market has done. It has cauterized us against even
noticing the poor breadth, just like it did in late November/early December
of 1972--right before it pulled the cord. The proponents are too ashamed
to call it by the same name, but no one can deny that the institutions have
now readopted "one-decision" stock buying. If it is true that 99% of the
NASDAQ's gains can be attributed to only 65 stocks, what else can it be?
And will the solution be the same?
It is not just market breadth that everyone is cauterized against. It
will be interesting to see, but I detect in the last two months that
everyone is almost ashamed now to be worried about the effects of Y2K. Ed
Yardeni is the economist that has been the most diligent in studying this
potential problem, and maybe the most nervous about the effects. I think
he is one of the most innovative of the most widely read Economist, and has
been right much, much more than he has been wrong. But even Ed is now
starting to waffle a little about his doom and gloom projections about Y2K.
So wouldn't it be just like that dirty old man Dow Jones, to wait until ev
eryone is cauterized totally, fat, dumb, and happy, and then let the
dreaded disease come back into full view. Y2K and market breadth, maybe
they are items that we should continue to watch. I would, but I'm ashamed
to talk about them.
Even though I am a great doubter about the exuberance expressed in the
market about every Tom, Dick and Harry Internet stock, I am a huge fan of
the Internet. I was telling the story many years ago, back when Al Gore
first invented it, how this phenomena was going to change the culture of
the world. But this same feeling about the "over-exuberance" of this new
investment bubble is similar to one that I remember having back in the
early '90's about the bubble of biotech stocks. So last night, as I
surveyed one of my newly-favorite websites, www.decisionpoint.com, I was
delighted when they reprinted from Tom McClellan-of the family that
developed the McClellan oscillator--a chart that overlays the CBOE Internet
index with the Amex Biotech index of the 1991-93 era. If you have time,
check it out under their sub-heading of Chart Spotlite. You never know
'til their over, but bubble psychology does not, has not, will not change
regardless of which "new era" we are in. So far I've been in at least two
major "new era's" and a lot of mini ones in my 30-year career.
Some trends to watch in the days ahead for clues will be the new strength
in the yen versus almost all currencies. This disturbs the "yen-carry"
that many attribute the US market strength to. If we should see another
run on the dollar, and euro, that could take away another low-cost source
of money for the hedge funds. If you look at the dollar or euro charts
versus the yen, you see a close correlation in the market action with the
strength of the dollar.
The same thing seems to be happening in commodity prices, although it is a
little early to tell for sure. But key commodities like copper, lumber,
and aluminum had been coming down slightly in a digestion type of pattern.
They seem to have found support at a higher low triangular configuration,
and now nudging back up. If this upward move continues as I expect, it
will start the talk again that just maybe Greenspan will raise interest
rates in December. The most interesting of the commodities will be the
price of gold. I believe that would be an excellent trade here, since it
has been idling in a narrow range for the last few weeks, but I expect it
to break out to the upside in the next few days/weeks. Remember, I said
trade, and they should be protected with stops. The upside breakout would
be a move above $300, and the downside stop would be right below $290.
I hate to mention it, but out of the corner of my eye, I am also seeing
the long bond yield inching back up. That is another one of those items
like the above that could cause the market some indigestion.
Today does begin the strongest seasonal period of the year, by far. It
starts today, and does not end until the first few days of January 2000.
(Boy, I'm relieved that number didn't cause a crash.) That should be
noted, seasonality often gets swamped by other more important factors, and
I think this year will be one of those years.) I think it was Edson Gould
who used to stress how important it was to watch the action on these
seasonally strong days. If the market does not respond according to
historical biases, he said it was something to really take notice of.
So as I end these comments, ready for this fantastic holiday when we can
spend some time between gorging ourselves, and watching football, et al, to
give thanks for the fantastic blessings that we enjoy, I just want to ask
you, have you noticed the poor breadth?????
The foregoing information and opinions are for general information use
only. They are the sole opinion of Don Hays, President and Chief
Investment Strategist of the Hays Market Focus Advisory Group, and may or
may not agree with the opinions of any outside party furnishing these
comments to you. The Hays Market Focus Advisory Group does not guarantee
their accuracy or completeness, nor does the Hays Market Focus Advisory
Group assume any liability for any loss that may result from the reliance
by any person upon any such information or opinions. Such information and
opinions are subject to change without notice, are for general information
only and are not intended as an offer or solicitation with respect to the
purchases or sales of any security or as personalized investment advice.
Hays Market Focus Advisory Group, 2828 Old Hickory Blvd., Apt. 1808,
Nashville, Tn. 37221. |
