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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: donald sew who wrote (34392)	10/31/2000 8:28:05 AM
From: pater tenebrarum	Read Replies (3) \| Respond to of 42787

Don, i'd like to chime in with the observation that the extreme sector rotation of recent months is HIGHLY unusual in a historical context...it simply has never happened before that some market sectors suffer huge declines while others are near all time highs. imo it is a sign that modern fund managers still wish to stay fully invested, come what may. in other words, it denotes utter complacency. the same complacency that can be seen in the net futures position of large and small speculators (they are still record net long the spoos by a cool 67,000 contracts), some recent sentiment polls (AAII: 64% bulls, 18% bears) and the Rydex ratios, which remain in heavily overbought territory (overall Rydex ratio sits at 0,12 - only 0,04 away from its all time low). how market participants got to be so complacent at this time remains a mystery to some extent. i guess 18 years of bull market training will do that, coupled with the incessant propaganda by the WS financed financial media, which are unanimous in their opinion that a year end rally is in the cards. i have been looking for a post election relief rally myself, but my doubts are now growing...i have a feeling that the sector rotation implies that everybody is ALREADY fully invested...so the question is, where's the money for the rally going to come from? not from margin debt, which remains at an incredibly lofty $250bn per September. not from Europe, as European fund managers are up to their eyeballs in US equities, having bought record amounts this year (the one year notably, when it was better to stay out). not from the NYSE members, who have expanded their balance sheets at an absolutely frantic 32% annual pace this year, and whose trading desks are brimming with inventory(which no doubt gets distributed on the current Dow/NYA rally). not from pension funds, whose equity allocations are in the aggregate already at an all time high of 78% - more would in many cases approach a breach of fiduciary duty - equities are patently not exactly without risk after all. that leaves the fund inflows that are on auto-pilot, like 401k's. however, those are overwhelmed by the amount of paper coming to the market in the form of IPO's (well, that's slowing a bit now), and insider selling. and then let's not forget that huge amounts of "money" people thought they had, have gone to money heaven in the course of the tech stock denouement. likewise, liquidity in the corporate bond market has died down to a trickle, with credit spreads residing comfortably in panic territory - which of course means that stock buybacks have ceased as well. for the first time since the bubble took off in the early '90's, corporations have become net issuers of equity as a result of the credit crunch in corporate debt. i am trying to convey two things: first, it is highly likely that a secular bear market has begun. and secondly, in order to achieve a meaningful intermediate term low, the complacency in the marketplace needs to be shaken profoundly...and for that, the sector rotation must end with a bang, where all types of stocks get thrown out in a flight from risk. lastly, it remains to be said that in spite of many market sectors being severely oversold and possibly due for a bounce, many of the big cap 'leaders', from all sectors, have had ominous trend line breaks recently. a few examples (courtesy of Allan Hagget): homepages.go.com homepages.go.com homepages.go.com SPX hugging long term support: homepages.go.com but then, i guess the bulls can always fall back on this: grantsinvestor.com -g- best regards, hb