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

To: marcher who wrote (41405)	2/25/2000 9:48:00 PM
From: Box-By-The-Riviera™	Read Replies (1) \| Respond to of 99985

One of the first truely rational questions asked here in the last 1000 posts. Hopefully you will get a rational answer. J

To: marcher who wrote (41405)	2/25/2000 10:07:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 99985

Marcher, it is actually a well known fact that manic markets tend to advance well into a tightening cycle. the momentum and psychology are just too powerful, and what's more, the Fed provided enormous bubble-fueling liquidity through the back door in Q4 '99 because it feared a y2k crisis. in a sense the market is beyond anyone's control, although the Fed's monetary policy is of course a big determinant in the behavior of stock prices. i do believe the NAZ will eventually also fall prey to the more restrictive stance the Fed has now taken. in fact, i fear that once a serious correction in the NAZ gets going, it could catch up with the rest of the stock market in a hurry. look at it this way: first the a/d line topped out and began to collapse, as everything not in the big cap or high-tech sectors began to be sold off to free up funds for what 'worked'. as the ratio of the markets capitalization to the money supply became greater, more stocks joined in the mass of decliners to support the remaining stocks that continued up. the a/d line drop steepened as a result. as the indices made their highs in early January, they did so with the smallest percentage of stocks at new highs that ever produced an all time high in the indices concerned (INDU, OEX, SPX). the a/d line was already in free-fall. now, the first set of big cap indices has begun to join the a/d line in it's descent, as once again liquidity to drive the remaining 'hot' sectors needed to be freed up by selling components of the 'old economy' big cap indices. as you can see when looking at a chart of the INDU, the descent is steep, as there is a lot of ground to cover before the a/d line is caught up with. the last bastion that remains is the NAZ/NDX, where now all of the capital that was freed up by the selling of the broad list and the big cap INDU stocks is concentrated. at some point, someone will blink, and begin to sell. well, you're looking at the most crowded trades of all time here. for instance CSCO, the one-decision stock par excellence, is a big position in every single Janus fund, even the income oriented ones. so once the first little pebble begins to roll down the hill, you'll get an avalanche in no time at all. the money will scare itself out just like that...some event will trigger it, perhaps as someone suggested, a failure of one of the new economy firms, or maybe it will be a round of IPO's that find no takers. but happen it will. regards, hb