Here is a great peice from a freind of mine....and It was so good i had to post it for all of you to see.
Market Once Again Proves That It Is One Taco Short Of A Combination Plate
By Goran Yordanoff
TradingMarkets.com
April 11, 2001 6:10 PM EST
Once again this morning we witnessed the investment community completely whipped into a frenzy by an onslaught of bullish pre-market analyst calls and a remarkably positive spin on the Motorola horror show. As a student of the market, I was completely flabbergasted as Wall Street's shameless endorsement of Motorola's stinkbomb of a quarter created pure panic buying in the semiconductor and networking sectors. Forget about the fact that EMC warned pre-market and put their revenue growth in the low 20% area, when last week the CEO of the firm said he was confident that the firm would grow revenues by 30+%. With the CEOs that run the corporations we trade unable to make a revenue growth projection within a 50% margin of error, should we believe the army of analysts/market strategists that have consistently misjudged this market downturn? Nonetheless, we saw the commercials and institutions sell relentlessly into the retail feeding frenzy early this morning on the heels of the unanimous battle cry from Wall Street that "the bottom" is in. Honestly, these days I need to keep a motion sickness bag next to my computer for the times I can't tolerate the foolishness I hear all day long.
Interestingly, Wall Street was able to adrenalize the Dow for a 70-point rally off its lows in the final 30 minutes of trading. Conveniently, the big dogs were able to close the index comfortably above the 10,000 level, after being down to 9951 with only 30 minutes remaining in the session. Lewis Borsellino's Teachtrade.com site reported that they estimated Goldman Sachs to be a seller of nearly 7,000 S&P futures contracts today. If this market has bottomed and is such a screaming "buy," why were they selling? There is no doubt in my mind that the market is setting up for another precipitous decline in the next three weeks that will continue to punish those who bought the bottom hype as the analysts and strategists shrug their shoulders.
Yahoo's earnings report continued to show significant deterioration in their business model. With an eroding bottom line, huge cuts in their workforce, and a warning for the second quarter as well, I cannot see the silver lining on this cloud, as Wall Street has been so quick to identify with other horrific reports. Nonetheless, the stock was bid up by the internet faithful who actually bought CEO Koogles hype for the past three years. Tragic, indeed.
However, the earnings report wasn't the hot news at all. Yahoo today announced that they have begun selling pornographic videos online. The firm went on to say that they have opened an online store selling thousands of hardcore videotapes and DVDs. The slogan of "Do you Yahoo?" now assumes a whole new meaning, as well as the term "internet pop-up." I suppose that with the fundamentals of the Internet advertising sector continuing to deteriorate, they had to fall back on some good old fashion smut to help their bottom line. Maybe their new slogan should be, "When our sponsors didn't pay, we had to fall back on some T & A." In fact, I was expecting them to announce some kind of alliance with Research In Motion (RIMM) as the cherry on the sundae. Does all of this seem surreal to you as well? In fact, I logged on to Yahoo's new online porn shop and observed a few products that the company must be confident will help them regain their once lofty multi-hundred-billion-dollar market cap. One such item that personified a desperate move by a desperate firm is the "Dirty Girl Bubble Bath: Virgin Slut Soap." Whoa, I didn't think soap had such underlying significance. I can't help but lament the boring life I've led by only using Safeguard.
Lam Research reported after the bell as well and missed their own lowered expectations by .03 cents a share. In addition, they are cutting 15% of their staff and warning about the future. Amazing, as these firms are telling us that no bottom to their decline is in sight, we still have people willing to buy the semis on the way down -- afraid that they will miss some type of magical rally that will leave us all behind scratching our heads. It is exactly this type of thinking that will prevent this market from marking an important bottom. Until this type of "got to buy them so we don't miss the rally" is eradicated, we will continue to move lower until it is. Thank God for "pro-forma accounting." Without it, we would really be able to see how bad things are.
What we didn't hear about today from our friends in the financial media was the fact that the new Consumer Credit Outstanding figures were released for the month of February. It reveals that, "Consumers are still spending, and they're using credit to do it -- financing their spending through liquidating assets and taking on more debt. At the end of February 2001, consumers were $1.6 trillion in debt, not counting home mortgages (to place this figure into perspective, the national debt currently stands at $5.7 trillion). Consumer credit outstanding grew by $13.5 billion in Feb. 2001 compared to $9.4 billion in Feb. 2000. As a share of total consumption, consumer credit increased to 22.3%, its highest level over the past decade." (information taken from "Taking Undeserved Credit" from www.dismal.com) In this article, parallels are drawn between the rise in consumer credit in 1990 and the rise today. "In contrast to current trends, growth in consumer credit outstanding (in 1990) clearly decelerated as consumers adjusted not only their rate of spending but also their use of credit." At the present time, however, "despite feeling less optimistic about the future, consumers are still willing to finance present-time spending on goods and services by pushing payment in to the future."
What stood out as being enormously significant in this article is the issue of credit quality. Delinquency rates have risen to nearly 3.7% but more importantly, the number of loans that banks have written off as losses, or charge-offs, is approaching 2.7%, higher than the peak reached in 1991. Unfortunately, really important data like this doesn't get any airtime as it completely undermines the Bull's attempts to brainwash us that the consumer will lead this economy out of recession as the manufacturing sector continues to fall deeper into recessionary territory.
Many people have loved to point to the 10-day Arms index, VIX index at 40 last week, etc. etc. as being signs of prior market bottoms in the past. Could it be possible that these technical readings don't apply in today's market environment because, oh let's see...we're in a different market environment? While I'm not suggesting that we shouldn't use the past for informational purposes concerning the current market conditions, I do believe that this market will generate an entirely new set of technical readings, etc. when we truly do bottom that will be unique to other corrections/bear markets of the past. As such, you can't go long blindly because the 10-day Arms index is giving you a 1.50 reading or because the VIX is at 40. It just isn't that easy.
As a fellow trader and dear friend of mine, Steve W. has said in the past, "The market is neither right nor wrong, it just is what it is."
As such, the market continues to drive by looking in the rearview mirror. It's easy to do this as long as you drive straight ahead, but wait until you hit a few curves...
With March retail sales coming out tomorrow morning as well as PPI, we should have plenty of news to move the market over the next few sessions.
Let's see how the indexes look after today's activity:
Chart is not telling us much. Tomorrow will be a key session.
The chart of the Nasdaq Composite clearly looks short-term toppy here and looks poised for a healthy retracement.
As such, focus on shorting technology stocks that have had enormous run-ups the past several sessions. These names include: AMAT, JNPR, MUSE, CIEN and CHKP.
Let's get ready for some serious fun tomorrow with the PPI number and GE earnings pre-market.
Goran |
