>>> my perception is they are trying to prop this up for the sole purpose of getting out <<<<
Distribution, distribution, distribution:
The Song Remains The Same
By Goran Yordanoff
TradingMarkets.com
July 21, 2001 5:30 PM EST
Once again, the market has over-promised and under-delivered. Once again we witnessed the state of euphoria manufactured by the media following some inconclusive comments made by a technology company. Once again we are seeing a broadening of the disconnect between the market and reality. But most of all, we are witnessing the gross manipulation of stock, futures, and the major averages by the large institutional conglomerates. Let there be no doubt that we are currently witnessing the final stages of what will clearly be reflected on as the largest period of stock distribution ever performed by Wall Street.
Every week I write to you there appears to be another argument surfacing as to why the stock market has found its long-term bottom and why stocks should be bought irrespective of their historically high valuations -- why the economy is soon to turn back up and re-ignite new sustained periods of hyper corporate earnings growth. Plain and simple, these are lies. Wall Street's chronic abuse of the retail investor made famous early last year by the analyst community issuing "strong buy" recommendations for stocks that were grossly overvalued and nearing a crescendo on their charts while institutions and insiders sold massive quantities of shares has not subsided in the least bit. The only difference this year is that many of these same tactics have been employed in the manipulation of gaming stocks, video gaming stocks, retailers and specialty apparel stocks, healthcare and managed care stocks, and stocks in the energy sector. (Credit Suisse First Boston has reiterated their "buy" recommendation on four different occasions on THQI in the past two months after the stock is up nearly 1000% in the past 11 months and insiders are selling... why? In addition, why have insiders of American Eagle Outfitters (AEOS) continued to sell millions of shares of stock as Wall Street continues to pound the table bullishly on the firm?) But wait, perhaps I am overlooking a sector that was bullishly pumped by the Wall Street analyst fraternity that continued to go higher and I've merely overlooked it. Let's go back in the past and try to remember some of these "MUST OWN" sectors.
Internet sector: business to consumer, business to business, e-commerce enablers, internet incubators, web portals, internet service providers, broadband service providers, etc. etc. were all hot, hot, hot at one time or another. Let it suffice to say that names like ATHM, AMZN, YHOO, EGGS, COOL, VIGN, ICGE, INKT, PPRO, EXDS, ARBA, BVSN, and others all captured the headlines and imaginations of millions. All of these highly touted stocks have crashed to near worthlessness without even the slightest warning or word of caution from the bullish champions of Wall Street who urged us to buy them fearlessly just over a year ago.
Fiber Optics sector: Who can forget the great fiber optics conferences in mid-2000 that saw names like JDSU, GLW, SDLI, AVNX, NEWP, etc. all get upgraded and called "must buy" stocks near their all-time blow-off tops? I'm beginning to see a pattern here; are these multi-million dollar a year analysts innocently chart illiterate and devoid of any hint of technical skills or is there something else going on? I suppose that is a question for Congress to answer. Last I checked, many of these names were trading at least 90% below their highs. Again, no advance warning or words of caution. To give some credit, at least James Cramer of The Street.Com wrote a column urging readers to "take some off the table" near the highs in these stocks. Naturally, he was bombarded with hate mail, which insisted that he didn't know what he was talking about. Typical.
Genomics and biotech sector: Remember these? Anything that was remotely close to this sector exploded to the upside. The analyst community was awash in bullishness over the growth potential in this sector. At press time, there is no cure for the common cold much less lung cancer and many of these names are trading near their 52 week lows. Again, you guessed it, no warnings from Spanky, Alfalfa, and Darla.
Networkers: The hype of this sector came at an opportune time as pure internet plays were getting destroyed. We learned that we actually shouldn't have bought the "pure" internet stocks and instead should be buying into the "internet plumbing" stocks which we were told were the nuts and bolts of the internet. Gentlemen, start your engines. JNPR, SCMR, EXTR, CSCO, etc.etc. all rocketed north on the heels of the urgings of "the gang." If we were indeed in a new economy as Alan Greenspan had exclaimed several times during his Congressional testimony, then companies had to buy their routers and e-commerce-enabling equipment from the likes of these networking companies. Right? Perhaps the senior economists at these major firms missed the rapidly approaching cliff that was encountered or perhaps they merely forgot to tell their analyst counterparts that business cycles have not been eradicated from reality. Nevertheless, these stocks continue to decline into the depths of Nasdaq hell.
Storage: As recently as January of this year, we heard portfolio managers and other supposed "experts" actually state that the data storage sector was "bullet-proof." Well, they musn't have been aware that the world economy was packing a Glock with hollow tip rounds. Names like EMC, QLGC, EMLX, BRCD, etc. who were once the darlings of technology bulls everywhere are now wallowing in despair as a world-wide decline in IT spending of unforeseen proportions has fallen upon the sector (amongst others). Again, no advance warnings. Rather, we had continued bullish sentiment and renewed calls to continue buying these shares all the way down.
We can continue going on and on and talk about the specialty semiconductor stocks along with the computer hardware/software sector but the conclusion is always the same: total devastation in stock prices while Wall Street continues to urge the retail investor to "load the boat" and buy. Without doubt, the battle cry of present day bulls is no different from those who were pounding the drums back in 1929. That battle cry was of course "It's different this time."
What happened to all the sectors described above will eventually happen to all of the sectors that are hot today and considered "safe" places to put your money. The specialty apparel, healthcare, video gaming sector, etc. will all suffer the same fate because of one simple reason: their valuations are disconnected from reality. Can you tell me why Wall Street continues to reiterate their bullishness on a company like THQI when the company made only $3.5 million last quarter (BEFORE charges) yet has a market cap of over $1.2 Billions dollars? Please save the argument about revenue growth because it is the same hogwash we heard about stocks like JNPR, BRCD, etc. etc. etc. You cannot determine a company's valuation or market cap by extrapolating one quarter of high growth over every single quarter over the next five years. It doesn't work that way and it never has. If you don't agree with me, please take a peek at the charts of every single stock I mentioned above in each individual sector.
Yet, we continue to see the attempts on the street to call a bottom. For instance, many have boldly stated that the market has been, for the most part, refusing to go down in the face of bad news, and this is the earmark of the end of the bear market. I agree that the ends of previous bear markets have always been identified by a reluctance of the major averages to decline in the face of bad news, this is true. But the key element that these geniuses forget to discuss is the fact that these same bear markets came to an end when valuations were below their historical mean. In other words, we ain't anywhere close to this level. One of the true masters who continues to shares his wisdom with us after nearly 50 years in the market, Richard Russell, stated the following this week:
"I stay with one basic concept. Stocks travel from broad areas of undervaluation to broad areas of overvaluation -- and then back to undervaluation. It's the one syndrome that never fails -- you can count on it" ... "How long each "yield cycle" lasts is unknowable. How high stocks will rise in the bull market segment in unknowable. But the unknowable part is not enough for most people or for most analysts. These analysts want to play "genius" and that means telling us what will happen every week, every month, even on a day-to-day basis. Don't waste your time on this sort of work. It's work that doesn't work. This recent bull market took stocks to unprecedented highs of overvaluation. The top, the area of distribution is now in progress. So far, the top has lasted two years. I don't know exactly how long this distribution area will last - nobody does. But when it's over stocks will embark on a broad, relentless retreat (we've already seen the retreat in one area - tech." Dow Theory Newsletter, July 18, 2001
Have a peaceful weekend.
Gora |
