Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Millennium Crash -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (4733)	12/8/1999 8:13:00 AM
From: Terry Whitman	Respond to of 5676

On Topic: -g- Make no mistake, the blowoff is happening despite the poor recent performance of the laggard indexes like DJIA and SPX. The NASDAQ Composite (COMP) easily has climbed to new all-time highs... defying otherwise weak technical internal indicators, particularly in the final moments of todays trading. While the COMP closed on its highest tick of the day, the DJIA closed on its lowest tick of the day. It's this kind of divergence that spells T-r-o-u-b-l-e... and that's with a capital "T"! Of course, we have been having these and other assorted key divergences for quite some time, yet the indexes, particularly the internet and high-techs, continue to scream higher. Eventually, they will pull the other indexes along the way. Keep in mind that this rule of thumb works both ways, now when the market is climbing, and also when the market starts to fall. The NYSE Advance-Decline Line started diverging from its parent index in early 1998 and has been diverging increasingly further ever since. Today was another multi-year low for the A/D line while the COMP was making a new all-time high. I doubt any of us will ever witness another example of classic divergence in this magnitude again in our lifetimes. Keep in mind that the stocks that make up the NYSE are not the same stocks that make up the COMP. It certainly makes sense that the young, tech-heavy COMP stocks will significantly outperform the muture traditional-industry stocks of yesteryear. What all of this is saying, is that this divergence can, and probably will, continue to widen as more individuals (and reluctant mutual fund managers) prefer to buy the fad stocks rather than the former tried and true stocks of old industry. After all, why would anyone want to own the cornerstone businesses of industry like Caterpiler, General Motors, or even International Business Machines when they can own the newer kids on the block: Yahoo!, e-Bay, and Microsoft. While it is clear that the paradigm shift is occuring right before our eyes, the transition from old industry to e-commerce will need some seasoning before significant profits will be realized. We learned this with the bio-techs in the 1970's (of which some of the survivors have only recently exhibited proficiency in this area). Unfortunately for many investors, the time between now and when that seasoning begins to bear fruit may be too long to hang on. Soon, the fad will wear off and even though these new e-commerce businesses will not significantly change from their blue-sky visions, the waning fad will cause their stock prices to plummet. When the COMP index starts to fall, it will drag all of the other major indexes down with it. This, of course, will all happen in due time... it is simply that today was not that day. The rest of the month of December should be very interesting for watching technical indicators, divergences, and sector-rotations. For the last several years, American investors have been saving less and less, prefering to plow more money into the stock market rather than saving accounts, and this has actually resulted in negative savings and over-extended credit without significant "core" inflation. If this years Holiday spending season is going to be a great one for retailers (and e-commerce), the money for this spending must come from somewhere. If there is less available in the savings account and credit cards are already maxed out, then the only alternative is to sell some of their laggard stocks. This may be an explanation why the NYSE, DJIA, SPX, and other major indexes are falling at a time when the COMP is rising. If they don't sell stocks, then it's too bad for little Timmy and Suzy this Christmas... Santa is caught up in a stock mania! geocities.com hohoho, Merry Millenium Crash!