11/29/02: Market Monitor- Bernie Schaeffer, Chairman of Schaeffer's Investment Research Incorporated
KANGAS: My guest Market Monitor this week is Bernie Schaeffer, Chairman of Schaeffer's Investment Research Incorporated and publisher of the popular monthly "Option Advisor" newsletter which, in turn, sponsors his Web site.
Welcome back to NIGHTLY BUSINESS REPORT, Bernie.
BERNIE SCHAEFFER, CHMN. & CEO, SCHAEFFER INVESTMENT RESEARCH: A pleasure, Paul.
KANGAS: Here we are, eight straight weeks on the upside for the big blue chip Dow stocks. Do you this typify this rally, as you did last time, as nothing more than a rally in a bear market overall?
SCHAEFFER: Well, I do believe from a broad market standpoint that it has, it is a rally in a bear market. However, I see it as a kind of a bifurcated situation. The big cap S&P type stocks are in a bear market rally that probably has limited upside from here. On the other hand, the NASDAQ, particularly the small and mid sized names on the Nasdaq, is showing some great technical strength. We've had a huge buildup in short positions, particularly on some of these so-called single digit midget tech stocks that have been leading the way here. And I think we could get to maybe 1, 650 to 1, 750 on the Nasdaq before that rally is over.
KANGAS: That's worth playing, isn't it?
SCHAEFFER: That is a playable rally.
KANGAS: But there is no fundamental basis for the rally. Mostly technical, big short positions, nice chart patterns. Anything fundamental?
SCHAEFFER: In addition to that, interestingly enough, people scoff at some of these cheap single digit stocks. But, for example, one of the stocks that I like, Western Digital (WDC), here's a company that has earnings, whose earnings are growing, that sells at a reasonable P/E, that sells at less than one time sales. I think there has been some value that's built up in this area and the shorts got very complacent. They were shorting these stocks all the way down. And then all of a sudden, boom, they are too cheap and the rally is creating short covers.
KANGAS: It has legs, the smaller high tech stocks.
SCHAEFFER: Correct. The blue chips limited. I think they have limited upside.
KANGAS: Before we get to the specific recommendations on calls, last visit July 12 you were bearish. Dow was 8, 700 t. Went down to 7, 200 in early October. Urn right on that. You have five puts. Microsoft. Verizon (VZ), G.E. (GE). J.P. Morgan, Merrill Lynch (MER). All of them at on point were nicely profitable if you exercised which I assume you did.
SCHAEFFER: Right.
KANGAS: You did pretty well.
SCHAEFFER: Right.
KANGAS: You had three calls, Newmont Mining (NEM), you like the gold stock, that didn't work out. Krispy Kreme Doughnuts (KKD), that did work out, not big time. General Motors (GM) didn't work at all. So now what do you like?
SCHAEFFER: Well, I'm going to stick with the Nasdaq theme for two -- I'm going to give three call picks.
KANGAS: OK.
SCHAEFFER: And I would go out in the three month time horizon for these cal picks.
KANGAS: OK.
SCHAEFFER: It would be Western Digital (WDC), QualComm (QCOM), and I'm going to stick with Krispy Kreme, because that's a mid cap favorite of mine for a long time.
KANGAS: For three months, give us a rough idea of the premiums on these.
SCHAEFFER: For three months, roughly, on the stocks we're talking about, it would be for an option that's on the money where the strike price equals the current price of the stock, roughly 10 percent or so of the price of the stock for the (UNINTELLIGIBLE).
KANGAS: Are you personally involved or any of your interests in those three issues?
SCHAEFFER: Yes, in all three of those names. Yes.
KANGAS: OK, all right, let's get to the put side of things.
SCHAEFFER: On the put side, I would go a little further out, because I see some upside here through, let's say, January. So I would go six months or so out, and I would go with some of the big cap, high capitalization mega cap names like Pfizer (PFE), J.P. Morgan (JPM) and --
KANGAS: Still, huh?
SCHAEFFER: I would, it has rallied to a resistance area. I would be shorting that. And I would look at the Dow Jones Diamonds Trust, ticker symbol DIA. It's traded on the American Exchange. And my reason for looking at that six months out for an option play is I feel the Dow, of all the major big averages, is the most over valued, the most vulnerable to a big decline. And I think before this bear market is over and that final leg down, we might see a Dow as low as 6, 000.
KANGAS: Right. You have personal interests in those puts that you mentioned, as well?
SCHAEFFER: Yes.
KANGAS: OK. So you think the Dow is going to get hit badly, when, after the first of the year?
SCHAEFFER: Some time in 2003.
KANGAS: OK.
SCHAEFFER: And, again, I don't think this bear market can end until we see a Dow number that's in that 6, 000 zone.
KANGAS: All right. Bernie, always great to have you.
SCHAEFFER: A pleasure, Paul.
KANGAS: My guest Market Monitor, Bernie Schaeffer, Chairman of Schaeffer's Investment Research. |
