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

To: Captain Jack who wrote (23367)	11/5/2001 11:33:05 PM
From: dennis michael patterson	Respond to of 52237

Bernie still bearish: Bernie Schaeffer's November Option Advisor Commentary: Not So Fast, Bulls By Bernie Schaeffer 11/5/2001 11:09 AM ET The following is a reprint of Bernie Schaeffer's market commentary from the November edition of The Option Advisor, published on October 25. Prices are as of the close on October 25. So have we learned our lesson yet? What lesson, say you? You know. The one your broker kept pounding you with over the past month - the one about "don't sell your stocks on news of war, famine, or pestilence because actually that's a great time to buy stocks!" And now that most of the market averages are trading above where they were on September 10, the "cold-call set" (and quite a few high-profile media types) are doing victory laps. Here's my take. The victory lappers are probably good for a few more times around the track. But at some not-too-distant point, while they're too busy high-fiving each other to pay attention to what lies ahead, they'll slam into a brick wall. The rally off the September 21 bottom has been impressive, particularly for the technology sector. And I'm talking about much more than simply the positive price action. Coincident with the rally off the bottom has been a steady increase in the ratio of put to call open interest on the most active of the tech-related options - those on the Nasdaq-100 Trust (QQQ - 36.80). From a bottom at 0.31 (31 open puts for every 100 open calls), this ratio has steadily climbed to its current reading of 0.77 (77 open puts for every 100 open calls). This means that put players have been trying to fade this rally all the way up, and rare is the situation where options speculators are successful at trading counter to the trend. In addition, premium levels on QQQ puts have been bid up to high levels relative to QQQ calls, creating what we refer to as a significant "negative volatility skew." In plain English, this means that there has been a greater sense of urgency to pay up for puts than there has been to pay up for calls, which once again has bullish contrarian implications. And finally, QQQ short interest actually increased from mid-September to mid-October by over 25 percent, a period during which I would have expected significant short covering. This leaves a record 128 million shares in QQQ short positions out there locked and loaded and ready to fuel rallies. So there is upside from here, but I'm playing this rally with one eye focused on the exit door. First and foremost, while we've recovered to pre-attack levels in the market, this in no way negates the fact that we're in a bear market, and the technical position of this bear market is the worst since 1974. For example, after the October 1987 crash, both the Dow Industrials (INDU - 9462.9) and the S&P 500 (SPX - 1100.09) held firm at their rising 40-month moving averages. As of today's close, the S&P sits about 15 percent below its 40-month and the Dow about 10 percent below. Plus, the S&P 40-month has begun to roll over to the downside. And don't even ask about the Nasdaq Composite (COMP - 1775.5), which lies over 1000 points below its 40-month moving average. In addition, we are about to experience record monthly volume for the QQQ in October. What's wrong with this? Plenty. Back in the good old tech bull market days, volume in the QQQ would spike higher on pullbacks, as nervous longs bailed out and the shorts got confident enough to add to their positions. This is classic bull market behavior, in which pullbacks are designed to shake out the nervous longs and sucker in the shorts. Unfortunately, the behavior of QQQ volume has flipped. It is now the rallies that attract the big volume, as nervous shorts rush to cover and those on the sidelines urgently rush to buy "before the train leaves the station." In other words, this is classic bear market behavior, in which rallies are designed to shake out the nervous shorts and sucker in longs from the sidelines. Just one more thought before I go that may restrain you from getting too bullish in the wake of the nice rally we're experiencing. The market in 2001 has exhibited a remarkable tendency to rally during earnings reporting months while otherwise spending its time in serious declining mode. I discussed this in detail in a SchaeffersResearch.com market observation a few days ago. The punch line is that through October 19, the S&P was up by 13.7 percent over January, April, July, and October 2001, and down by 28.5 percent over all other months. I'll close with my explanation for this phenomenon contained in the aforementioned market observation: "If investor fear reaches some kind of extreme ahead of earnings reporting months during a bear market, perhaps any reality short of total disaster gets received positively by the market. The focus during these months is on comparing actual earnings to consensus earnings expectations. And since these consensus expectations already reflect the poor earnings environment and are, in general, biased downward to allow for positive surprises, a ‘feel good period' as earnings get reported subsequently transpires. Combine this with the normally fearful sentiment just ahead of these months and this is a recipe for a bear-market rally - ‘we expected earnings to be horrible but we were pleasantly surprised that they were only terrible.' But once we emerge from the earnings reporting months, the focus moves back to earnings growth, and this has been and remains an overriding negative with no relief in sight. If this pattern holds true for the rest of this year, then November and December could get pretty ugly for the market." - Bernie Schaeffer

To: Captain Jack who wrote (23367)	11/5/2001 11:40:21 PM
From: mishedlo	Read Replies (2) \| Respond to of 52237

Anyone who refused to fight on moral principles was a hero IMHO. Anyone who fought to support their country was equally a hero IMHO. Johnson, McNamara and all these other Fheads that kept this insane war going were the idiots IMHO. I do not blame Jane. We simply were not prepared to win this war. 1) We should have made South Vietnam an island 2) We should not have been there in the first place I can live with 1 or 2 We suffered enormously only to give it all up for "Peace with Honor". What a joke. We did not even have enough brains to take all the gold from S Vietnam stashes as we left. We did not have enough brains to finish the job in Iraq. If one wants to win a war, one should fight to win. AT THE LEAST COST. Otherwise, why bother. TRAGIC waste of lives. In this end Jane was 100% correct. Had we done what was required at the beginning Made South Vietnam an Island, Jane never would have had her chance to be RIGHT in the first place. As far as I am concerned, she was proven right. M