7/12/02: Market Monitor-Bernie Schaeffer, Chairman of Schaeffer's Investment Research
PAUL KANGAS: My guest market monitor this week is Bernie Schaeffer, Chairman of Schaeffer's Investment Research, Inc., the publisher of the popular monthly "Option Advisor," newsletter which sponsors his popular Web site. And welcome back, Bernie.
BERNIE SCHAEFFER, CHMN., SCHAEFFER'S INVESTMENT RESEARCH: Good to be here, Paul.
KANGAS: You know, with this kind of volatility we've been seeing in the stock market recently it's got to be an option traders' dream. It's got to be what you hope for forever, up and down, wonderful for option trade. But in the bigger picture, Bernie, what does it mean? Are we approaching a bottom? Is it the beginning of a big down move or what?
SCHAEFFER: Well, we, the market has a footprint or a fingerprint, so to speak, of when it declines sharply, the volatility of the market increases.
KANGAS: Right.
SCHAEFFER: That's just the way it is. So now people look at this volatility, they look at the CBOE Volatility Index, the VIX, and they say wow, it's really increased significantly from where it was before. Does that mean we have a bottom? Because bottoms are associated with increases in volatility.
KANGAS: What do you think?
SCHAEFFER: The key, as I see it, is it's not just the volatility, but is the sentiment getting to the extreme that you'd like to see at a bottom.
KANGAS: OK.
SCHAEFFER: And, for example, the sentiment as reflected in the CBOE Volatility Index is not nearly as bearish right now, even with this horrible week that we just had in the market as it was in September.
KANGAS: So we could get a pop up here?
SCHAEFFER: We could get a pop, but the point is the ultimate bottom from our sentiment indicators is not in place. There's actually bigger call activity lately on the QQQ on the OEX Indices than put activity, not consistent with a bottom, as I see it.
KANGAS: All right, and last time you were with us, November 30 of last year, you said Dow 7,500 a distinct possibility. You still believe that?
SCHAEFFER: I think Dow 7,500, maybe even 7,000. Our target on the Standard & Poor's is 775 to 800.
KANGAS: Oh boy.
SCHAEFFER: That's about 50 percent off the highs. But compared to other bear markets, given the fact we went up over tenfold since 1982, a 50 percent decline from top to bottom is not --
KANGAS: Almost normal.
SCHAEFFER: I would say it's almost normal after a big pop. Right.
KANGAS: Yes. The last time you were with us in late November you were short-term bullish. You recommended two month calls on Juniper Networks (JNPR), Symantec (SYMC) and NVIDIA (NVDA). They all did very nicely, went up. I hope you took your profits. I'm sure you did.
SCHAEFFER: Sure.
KANGAS: And the long-term you were negative. You recommended three to six month puts on General Electric (GE), AOL Time Warner (AOL), Schwab (SCH) and J.P. Morgan (JPM), and they're all way down so you must have profited nicely on those put, those options.
SCHAEFFER: They were very nice trades. And option premiums were low then, so that was nice, too.
KANGAS: Yes. I congratulate you. What's the strategy now? You're still bearish, but how about the short- term?
SCHAEFFER: Short-term we could see a bounce, but I don't think it's playable.
KANGAS: OK.
SCHAEFFER: Except for scalpers and real short-term traders. I still think the play is on the put side. I think we've got some significant down side in the market. I'd go out six months to January 2003. I got some put and call plays for you for six month options and I can run down those for you.
KANGAS: Let's have the puts. That's what you favor here.
SCHAEFFER: OK. The puts is what I favor. I have five of them. Microsoft (MSFT), which --
KANGAS: You own?
SCHAEFFER: -- I have a position in on the put side.
KANGAS: You and your company?
SCHAEFFER: Correct.
KANGAS: Yes?
SCHAEFFER: Verizon (VZ) and G.E. (GE). Verizon I have a position. G.E. I do not.
KANGAS: OK.
SCHAEFFER: J.P. Morgan (JPM) to the downside on the put side. I have a position. Merrill Lynch put side. No position.
KANGAS: OK. What about the calls, just short-term? Because we can't short change the bulls.
SCHAEFFER: Well, six month out again to January, I'm counter trend. Gold stocks I'm bullish on, so I like Newmont Mining (NEM). I have a position. And I also like Krispy Kreme Donuts (KKD), a nice midcap restaurant type grower.
KANGAS: Also volatile. You like that sort of thing. Have a position.
KANGAS: Yes?
SCHAEFFER: And General Motors (GM). I have no position. A nice dividend yield of four plus percent. Some long- term price support there.
KANGAS: So pretty much the same as last November, when you were very short-term bullish -- and right -- and then long-term bearish, which was right.
SCHAEFFER: I think that, yes. And I think the play for here is to the bearish side, but a little bit longer out.
KANGAS: All right. Bernie, thanks very much for being with us again.
SCHAEFFER: A pleasure, Paul.
KANGAS: My guest, Bernie Schaeffer, Chairman of Schaeffer's investment research. |
