Latest from Don Hays:
MORNING MARKET COMMENTS
by
Don Hays
January 26, 2000
Get ready, because we are going to try one more experiment in a
little
while. At your suggestion we are going to try to send this to you in the
form of a PDF file which requires a special software program to open, i.e.
Acrobat Reader. But since the programs are readily available, and free,
it
seems to be the answer to our delivery. We suspect that the vast majority
of you already receive many items through this method, and have the
software
already installed. This method will compress the file sufficiently we
hope,
and allow us to send some charts along with the text. But that's later
today. As for this transmission we are going to send this text file as
normal, and then in about an hour we will shoot the second version that
will
be the same report, with a chart or two, through the new method. Even
this
is a short-term type of procedure, since our next project is to get this
on
a web site that will allow much greater flexibility. Thanks again for
your
patience, and for serving as our sounding board.
The market the last two days has done it again. Teasing and
taunting. The
weakness on Monday certainly shows the power of a declining market. The
stocks that are getting squashed, i.e. Tellabs yesterday and Qualcomm
today,
are certainly paying their dues for not meeting expectations. But despite
all this, so far the major support levels are still holding by and large.
And as we hear time and time again, the traders are saying that until they
do break consistently the decision of choice is to buy the dips.
Of course, we don't buy that. Our methodology uses quantitative
methods
involving a combined analysis of valuation, psychology, and monetary
conditions. For 30 years we have found that these are the criteria that
determines the next 6-24 months direction of the market. And so far, even
in the strangest market performance in the history of US stocks, we see no
clue that this methodology has changed. This is not the first time that
we
have to sweat and strain and toss and turn when the market puts up a
camouflage to disguise the emerging trends. But in all cases, finally the
camouflage lifts and the supremely confident "traders," who have been
climbing further and further out on the limb find themselves bloody and
bleeding from margin calls.
In this experience, the hook has been set time and time again. So
far this
year, with Abby sitting on her bullish throne and all the subjects
kneeling
in adoration, they continue to keep their eyes on the few stocks still
serving as a camouflage. But look at the underbelly of this bull (?)
market. Now only 27% of the stocks on the NYSE are trading above their
200-day moving average. The advance/decline line has just made a new low.
But those refusing to see are telling me that the breadth is improving.
And
as next Tuesday's FOMC meeting draws closer, I see the Treasury bill and
commercial paper rates sneaking up. With consumer sentiment, which
incidentally is also a good proxy for investor sentiment, has just made an
all-time record high. This surpasses the previous high made in October
1968. Do you remember that time? Yes, it was a month before the absolute
top of the 1950-1968 super cycle bull market.
Even though the world's eyes are always on the FOMC meeting, the
truth of
the matter is that in this Greenspan era, their actions are virtually
never
as important as the headlines make it. Mr. Gradualism just tags along
with
the bond market. The bond vigilantes have determined Fed policy and
economic conditions on the interest rate front. At the current time our
monetary composite continues to be very weak. Items such as the yield
curve
continues to flatten, and virtually all short-term interest rate trends
are
very negative. But so far even these negative rates are failing to bring
money supply and the "souped-up" consumer/investor sentiment under
control.
As the huge float of new money continues to slosh around, with consumer
sentiment at an all-time record high, and mortgage rates up 2% from last
year's low, we find the lowest inventory to sales of homes for sale in the
history of US records. It doesn't matter how much interest you have to
pay,
so the story goes, if you have a Federal Reserve that guarantees you a
perpetual bull market.
This is a very important time, of course. This year so far has
put major
top formations in place, but as noted above, so far they have not
blatantly
broken down--starting the stampede. Will it take a catalyst to finally
break down the topping (as described by a bear reading the charts) or
consolidation patterns (for a bull reading the same chart)? Maybe so, at
least an excuse for the commentators to blame it on. What will it be? I
still think that the main barometer that has foretold the other recent
calamities will be the culprit on the impending top of the US and other
leading markets, and that will come from currency exchange rates. It is
important to note that once again the euro is very weak.
In this environment, the mixture of commodity prices, exchange
rates and
the bond market will be the combination that forces Mr. Gradualism into a
more preemptive role. By the way, have you been noticing the amazing
disparity between the action of the opening (wildly bullish) and the
action
in the last 30 minutes to an hour of stock market trading. This is the
basis for the smart money index's extreme weakness that we have been
pointing out in the last few weeks. Once again, we'll try to send that to
you in the next transmission in about an hour. Keep your fingers crossed.
The Hays Advisory Group does not guarantee the accuracy or completeness of
this report, nor does the Hays Advisory Group assume any liability for any
loss that may result from reliance by any person upon any such information
or opinions. Such information and opinions are subject to change without
notice and are for general information only. Hays Advisory Group, P.O.
Box
50436, Nashville, TN 37205.
(2000 Hays Advisory Group, LLC. All rights reserved. The information
contained in this report may not be published, broadcast, rewritten or
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