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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (29872)	12/1/1999 10:03:00 AM
From: IQBAL LATIF	Read Replies (2) \| Respond to of 50167

<<Wow, what a confused market! Let's start with the SP500. From 11/16 to 11/29, this index traded between 1400 and 1425. The top of that range is "new all time high" territory. The market was last up at these highs in late July when the SP500 hit 1420.14. Then on Tuesday, after two weeks in that range, the SP500 dropped out of the bottom of the range. This sets up the distinct possibility of a double top. A big picture double top here would have very negative implications. While the SP500 was testing its all time highs last week, the Dow was still 3.3% below its all time high at 11365. The Dow has spent most of the year swinging between 10400 and that high at 11365. With the exception of the drop below that range in late September and October, the Dow has been rangebound since mid April. Now onto the Nasdaq, everyone's favorite index (until Tuesday). The big news last week was that there was actually one day that the Nasdaq did NOT set an all time record (that was on Tuesday, 11/23). For those keeping count, the Nasdaq Composite had 17 record closes in 21 trading days. These types of runs do not last forever, and when they do end we usually see some carnage. Last Friday looked like the final record for this run, as the Nasdaq fell 3.22% on Monday and Tuesday. Now this does not necessarily mean the remarkable tech stock run is over, but just remember that blow off rallies usually end in a spectacular fashion. Meanwhile, the Dow Utilities have hit a new low for the year and are now down 9.9% for 1999. On Monday they hit their lowest level since early September, 1998. The Dow Transports are faring a bit better, but they are still down 7.7% for the year. So, with some very mixed performances by the stock market indexes, we turn our attention to the market internals. In short, they are just as mixed up as the stock indexes. The breadth indicators (which use the advancing and declining issues data) have been very weak. Even last week, when the SP500 was flirting with new all time highs and the Nasdaq was setting one record after another, these indicators kept dropping. In fact, they actually fell into oversold territory (pretty strange with the market right at all time highs!). Meanwhile, the indicators that use advancing and declining volume have held up better. And several of the indicators that combine the up and down volume with the breadth data are in overbought territory. Like we said, a mixed picture. There is one measure of the market internals that needs special attention. On Monday, the advance decline line hit its lowest level in over four years. The last time the advance decline line was at a lower level was on 6/29/95, when the SP500 was at 543.87. On Monday, the SP500 closed at 1411.18. This means that in the last 53 months, a period in which the SP500 has advanced 259%, the number of advancing stocks and declining stocks has been equal. There is only one explanation for this...the market is being driven by only a small handful of the biggest stocks. As we have pointed out in the past, the advance decline line is a pretty rough indicator. It doesn't figure very prominently in our intermediate term analysis. BUT, this huge divergence should be noted. In the past when we have had these types of long term divergences in the advance decline line, things have ended very badly for the stock market bulls. This indicator is not precise when it comes to timing, but it shouldn't be ignored. Finally, the interest rate picture has deteriorated in the last couple of weeks. Back on 11/16, the 30 year T-bond rate dipped briefly below the 6% rate. Since then it has moved steadily higher, and closed at 6.28% on Tuesday. Short term rates have also moved up...the 3 month T-bill rate has gone from 4.96% at the beginning of November up to 5.15% on Tuesday. Higher interest rates are not good for stocks, and if these rate trends continue, the stock market will start to take notice. So the market presents a very muddy picture here. But with the SP500 losing momentum in the area of prior highs, interest rates heading higher, generally weak internals, and the Nasdaq on thin ice, we would rather err on the side of caution. After treading water for the last few weeks, the market is poised for a big move. Add in the year end shenanigans and Y2K and things should start to get very interesting very soon. >>from walker letter

To: IQBAL LATIF who wrote (29872)	12/1/1999 11:06:00 AM
From: Lee	Respond to of 50167

Hi Ike,..Re:.bond yields cannot be ignored You might enjoy this piece from The Street.com's economic correspondent who agrees that interest rates matter even though the market is seemingly ignoring long bonds currently.<g> ******************************************************************** Getting Out of Denial About This Economy By James Padinha Economics Correspondent 11/30/99 3:40 PM ET If You Like Pina Coladas... JACKSON HOLE, Wyo. -- And today we test. In True-False fashion. (a) Policymakers proved relatively kind between 1995 and 1998. (a) (i) The central bank tightened only once between March 1995 and December 1998. (a) (ii) The fed funds rate is still half a percentage point lower than where it was in March 1995. (b) Money growth accelerated steadily and materially between 1995 and 1998. (b) (i) Growth in the M2 measure sped (on a year-over-year basis) to 8.7% (fastest since March 1987) from 0.4%. (b) (ii) Growth in the M3 measure sped to 10.9% (fastest since February 1985) from 2.2%. (c) Market interest rates fell steadily and materially between 1995 and 1998. (c) (i) The yield on the 30-year Treasury fell (on an annual average basis) for four straight years -- to 5.58% in 1998 from 7.37% in 1994 -- and hit an all-time low of 4.70% in the process. (c) (ii) That's never happened before. The answer to every single one of those questions -- all nine of them -- is True. ... And Somethingsomething in the Rain Why are you so pessimistic? Why do you deny what's happened? Why do you refuse to believe in the New Era? Those are far and away the questions I get more than any other. And these are my answers. I do not at all deny what's happened. Matter of fact, I go to great lengths to point out precisely what's happened; I lay out a hard-numbers history of one variable or another almost every day, and I usually link you directly to the data so that you can see (and interpret) it yourself. I suspect that the folks leveling this charge are new to the column -- they've read perhaps only one (stolen?) piece, or even only one headline -- and I encourage them to take the time to read a few others (you can always access them at this page). You'll find that, at one point or another, we've detailed what's happened to pretty much every macro indicator under the sun during the current cycle (and, in many cases, for much longer). I have been nothing but optimistic about the economy; I challenge you to find someone who's said more times -- and laid out more specific reasons (and numbers) for saying so -- that this economy would continue to barrel along more than I have. Meantime, I have refrained from jumping aboard the New Era bandwagon because for as much as technology and the Internet (and whatever other productivity-enhancing things you want to throw in there) have contributed to the economy's recent performance -- and please, before you write to accuse me of being clueless about how much technology helps, remember that you're writing a guy who lives in the middle of nowhere but can still (a) connect wireless at 1500 KBPS (b) communicate with his city-based colleagues in real time in a number of ways and (c) have food from anywhere in the country overnighted with the click of a mouse -- I think good fortune has contributed even more. Look back at the numbers at the beginning of the column. They show that the central bank recently proved way kind -- and market interest rates proved way kind as a result. And what many people were calling an overly "pessimistic" interest-rate outlook a year ago seems more like a realistic scenario now. Where will the bond settle one quarter from now? One year? I have no earthly idea -- I don't even know where the damn thing will finish tomorrow. But I do know that it seems silly to assume that the boatloads of help we got by way of global shocks will keep arriving over and over. It was far too hopeful to have assumed that that good fortune, and that kindness, would continue on indefinitely. And it hasn't. The central bank tightened only once between March 1995 and December 1998 -- but this year it's tightened three times in five months. Money is still growing faster than it has during all but one or two of the past 12 or 13 years -- but between 2.3 and 3.5 percentage points slower that at last year's peak. The yield on the bond dropped an average 45 basis points per year between 1995 and 1998 -- but this year it is on track to add 21. Many market participants will take from "pessimistic" notes like this that shares are forecast to crash (or that the author "hates" stocks) -- and that's too bad. This column isn't about shares, but if it was, this is how I'd respond. Interest rates haven't mattered for so long now that many people honestly think they never have -- or that they never again will. They will though. Interest rates will eventually end up mattering. They always do. Think of things in terms of a teeter-totter. With interest-rate increases on one side and shares (say) on the other. Especially when they come on top of very low levels to begin with, increases (especially little, spaced-out ones) won't send the rate side of the totter slamming to the ground -- and shares soaring to their death. Eventually though, as more are added on (or as it becomes more clear that they will be), they begin to weigh. How to know beforehand when precisely the totter will tip? That's always the tough part. It's kind of like pornography -- you'll know it when you see it. ******************************************************************* Cheers, Lee