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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (21878)	12/4/2000 6:55:02 PM
From: solihull	Respond to of 65232

Re: Bernie's Lookout, FWIW (sorry, no link) "As of the close of the market on December 1, 2000, our official long-term market posture switched from bullish to neutral. While the continued daily activity of the market did contribute to this decision, longer-term monthly closes acted as the deciding factor. As readers of our research and commentaries know, the 20-month moving average serves as a line of demarcation for us in determining if a stock or index is in bull or bear mode. For the first time since 1994, the S&P 500 Index (SPX - 1314.68), the index our stock market postures are measured against, closed a month below its 20-month moving average. Discussed below are other contributing factors that were weighed to implement this posture change. "One of the major factors that has continued to keep us skeptical of market moves to the upside has been the unwavering bullishness of investors as reflected in market opinion polls and recent analyst recommendations. "Investors Intelligence has long served as a source of investor sentiment data. This weekly figure sums up the opinions of investment newsletter writers and can be used to indicate when buying or selling pressure is potentially exhausted. High readings of the bullish percentage combined with low bearish readings reflect optimism in the market, which can be an indication that buying pressure may be running on empty. The reverse of these readings can indicate investor pessimism, which can lead into a surge in buying as selling pressure nears exhaustion. Recent bullish and bearish readings weigh in at 55.1 percent and 29 percent, respectively. These readings continue to reflect that investors remain bullish as the market continues its decline. Looking back at past market bottoms, these percentages traditionally reflect more investor fear as the market posts a true bottom. For example, previous to the bottom in October 1998, bullish readings fell below 40 percent while bearish readings were in excess of 45 percent. October 1999's bottom saw bullish readings again below 40 percent and bearish readings around 38 percent. Comparing current readings to these historical examples displays how investor pessimism has clearly not peaked, regardless of the deteriorating market conditions. "One of the more traditional ways to take a snapshot of market sentiment is by looking at the opinions of major Wall Street analysts. These are the most prestigious and widely followed of all market watchers whose voices carry considerable weight within the investment community. Though they are highly skilled as a group, the impact of their consensus opinion on the market is typically of a contrary nature. When these analysts are overly optimistic, the public will tend to follow in their wake and adopt a similar outlook. When the public is overly optimistic, there is usually a dangerous shortage of potential buyers. "What are these analysts currently saying? A.G. Edwards (Mark Keller) shifted five percent from their bond weighting to stocks. They are now recommending a 70-percent allocation in stocks and 30 percent in bonds. J.P. Morgan (Douglas Cliggott) raised their stock weighting from 50 to 60 percent, reducing both bonds and cash from 25 to 20 percent each. This is by far the most aggressively that Wall Street analysts as a whole have bought into a market decline in nearly a decade. We should note that optimistic sentiment is not always bearish in and of itself. But if everyone is buying while the market continues to drop, what happens when the buying stops (when no one is able to raise allocations any further)? Consider what happens when these former buyers should turn into sellers. Optimism is most destructive in a market that is already technically weak. "So what are we currently looking for? As it stand right now, deteriorating market fundamentals could get a boost from the Fed later this month should the current tightening bias be abandoned. Additionally, a follow-up with cuts to the discount rate would be one of the catalysts that the market could use to begin moving from its current level. Tandem to improvements in market fundamentals, a crescendo of investor fear as seen through our sentiment indicators would aid any attempts by the market to rally. Rallies by the market will fall under skeptical eyes until we observe a peak in investor fear as gauged by our sentiment indicators."