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

To: HairBall who wrote (40095)	2/13/2000 9:41:00 PM
From: pater tenebrarum	Respond to of 99985

LG, <<I think a bounce is likely next week, but not absolute. I think it not a question of if the glamour stocks are going to revalue, but what will investors do when that happens...rotate or bail. As I have said in earlier post, I think that depends on how the revaluation unfolds!>> i think you've hit the nail on the head. based on the extreme level of margin debt (2,5% of GDP, a record) i would expect the revaluation to be less than orderly. to me the pace at which margin debt has increased since last October is a sign that the market has run out of buying power...hence the buying on credit. margined accounts are of course liable to to turn a decline into a rout if the decline is steep...it is not a question of investors keeping a cool head then, but a question of their ability to come up with additional margin. as i have mentioned before, the wild swings in the credit markets and the recent rise in gold are liable to put a crimp into institutional (especially hedge fund ) liquidity. all sorts of 'carry trades' don't work anymore the way they used to. since these funds operate with an even higher degree of leverage than the average margined account, they could well serve to magnify a serious decline even more. i believe trimtabs recently pointed out that it's most basic look at market liquidity (cash take-overs plus fund inflows minus IPO's and insider selling) projects a huge liquidity shortfall for 2000. at the same time mutual funds are currently as fully invested as they get...with cash balances down to close to 4%. so i guess it will hinge on the Fed and it's ever reliable printing presses... btw, as an aside on sentiment, i guess everybody is familiar with Bob Prechter, who has been bearish for years...he now calls for 13,000 on the Dow. oddly, he manages to sound bullish and bearish in the same sentence. this may be the ultimate in warning signs <ggg>. the stance of most bears was also highlighted by a market call issuing from the bearish strategist at Brown Bros. Harriman: he said 'all the action is in the tech stocks' ... 'they will correct, maybe even by 15%' (gasp!)...he declined to say from where. all in all it sounded as if although he is bearish, his recommended course of action would be to buy tech stocks NOW. incredible really. regards, hb