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

To: Rob S. who wrote (44135)	3/26/2000 6:17:00 AM
From: nihil	Read Replies (1) \| Respond to of 99985

IMO one of the best predictors of market direction is the protective measures major investors make to protect the value of their portfolios. Let's limit the discussion to tech stocks with upward trajectories. A mutual fund (like Janus 20) must be prepared for a dip that leads to big withdrawals. The withdrawals come after the dip, so they can use deep stops or just think deep stops, so that they raise enough cash to satisfy their predicted withdrawals after the close of business. If a down spike if reverses, they can buy back in. They can tolerate a downspike in one of two of their top stocks, and, moreoever, can buy cheap deep OFM NET puts and exercise for cash if necessary. As a result, with concentrated portfolios in a double handful of top growth stocks they can hold little cash and be positioned to redeem shares if necessary. Of course, if they become truly bearish about the company fundamentals they can sell. But no one is fundamentally bearish about these stocks now, so they never want to sell any of them until they turn sour (and almost everyone can tell when they are going to turn sour -- e.g. when COMS distributes PALM). Since few (except not yet dead bearish analysts) forsee anything fundamentally bad for the overpriced 20, the pessimistic sell covered OTM calls and the optimistic sell OTM puts and the option volume and overall volatility on top equities climbs. Mini-corrections last only a few hours, and prices and PEs continue to climb into the stratosphere. Meanwhile, the slow growth old economy blue chips turn into underpriced gold mines. No one needs a savings account, just buy the bank or Ford or GM. Every once in a while when the NASDAQ 20 stumble, the old ones will rise, but until they have converted themselves into growth stocks, they have no future. The difference between the NASDAQ 20 and the other NASDAQ stocks is that the 20 have positive and rapidly growing earnings projected to grow higher in coming years. Most of them have dominant or growing dominance in their markets. The markets themselves (chips, software, opticals, and a couple of supernets) are seen as growing rapidly indefinitely. To most speculators who can be satisfied with 30-60% annual gains), the future of the other 30,000 securities is a matter of supreme indifference. Index funds no longer outperform the tech stock funds. As more and more people recognize this, the shift to top 20 techs will become even more dramatic. The Cape Cod barber in the WSJ is one of many touting tech stocks. Trillion dollar CSCO, MSFT, & INTC are just around the corner. No one can tell what will happen to everyone else. Very few speculators care.

To: Rob S. who wrote (44135)	3/26/2000 12:30:00 PM
From: 10K a day	Respond to of 99985

Rob ..I don't always agree...But I always enjoy your Analysis....

To: Rob S. who wrote (44135)	3/27/2000 1:50:00 PM
From: Yogizuna	Read Replies (1) \| Respond to of 99985

You raise a very good point about people spending less time online during certain periods of the year. Having been online since 1990, I have observed that bulletin board posts decline dramatically in May and June, as the weather gets much nicer and people tend to go outside to find other things to do. Will this translate into less mania for the market? I presume it will have some impact, but in my opinion, it is what the Fed decides to do going forward from this point in time that matters much more...... Yogi