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

To: Jim Willie CB who wrote (46084)	1/10/2002 9:13:48 AM
From: stockman_scott	Respond to of 65232

Crystal Bawl Thursday January 10, 8:00 am Eastern Time Forbes.com By David Simons It's a tough time to be contrarian about the stock market. The problem is figuring what's opposite. Leading Wall Street seers haven't been as sharply divided for nearly a decade--predictions for 2002 range from down 15% to up 35%. Lacking a contrary compass, I'm relying on history: Initial sharp recoveries from bear market lows often are followed by corrections that give back large portions of the gain. First the bottom line, then the detail. Right now, I see odds favoring a 20% correction of the Nasdaq by March. That would erase about three-quarters of the 45% gain since the post-Sept. 11 low on Sept. 21. I can't yet figure when the reversal of that correction should occur and by how much. But early pullbacks in new bull markets usually give hesitant investors rare second chances. A correction now would be counter to the positive sign that the Nasdaq has been above its 200-day moving average for a month, and on Jan. 8 hit a recovery high 7% above it. Still, I'm sticking with my scenario. In 2001 I did okay projecting the broad strokes, but was too cautious about playing the fourth-quarter rally. Last February, I compared the Nasdaq chart pattern of the 1973-1974 bear market to the Nasdaq's decline since March 2000. I said that the bear could continue until January 2002, equaling the 21-month duration of the 1970s grizzly (see "Not Net Now"). In July, after the April-June rally had stalled, I fretted that correction retesting the April low of 1,639 looked increasingly likely (see "Bear Ware"). By Sept. 7, the Nasdaq was down 14% to 1,688. Then, nine market days after the Sept. 21 low, I questioned whether the Sept. 11 tragedy had pushed the bear market far off its course of ending by early 2002, or whether the reaction was just an exclamation point (see "Secular Is As Secular Does"). I bet on a major sustained rally, contrary to prevailing sentiment that the market remained overvalued. But I didn't play it aggressively enough, due to worries that comparisons of chart patterns often stop working just when it seems they're infallible. Indeed, after mimicking the 1973-1974 bear market since July, the Nasdaq chart sharply diverged from it after Sept. 21. That's not necessarily outright failure of comparison. Instead it seems that Sept. 11 compressed the time to reach the bear market low and extended the initial snapback. The first rally after the 1973-1974 bear market gained 22% over a month. That was followed by a correction lasting 20 days that gave up three-quarters of the gain. The Nasdaq's post-Sept. 21 high was a 45% gain achieved on Jan. 4. The retrenchment that I see would take the Nasdaq near last April's low. The average could rise 5% more before correcting, but against odds for 20% decline, it pays to be cautious. That doesn't mean you should sell everything. Just have cash available for the rebound. When the rebound comes, it will be time again to "buy the dips." That worked during the 1990s but failed miserably during the bear market. This time, the companion notion of holding for the long term will be dangerous. As my October column detailed, odds are that a secular bear market has begun. If so, the coming bullish opportunity is merely a countermove with limited life.