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Technology Stocks : Full Disclosure Trading -- Ignore unavailable to you. Want to Upgrade?

To: advocatedevil who wrote (3098)	12/6/2002 9:54:42 AM
From: Return to Sender	Read Replies (1) \| Respond to of 13403

OT: Consensus 'buy' signal spells 'sell' Bernstein cuts equity allocation to 45% from 50% nationalpost.com{48B8C429-CD1A-49A0-83A2-DBF6F4A23DAA} William Hanley Financial Post Wednesday, December 04, 2002 If you're counting on a season of good cheer in the stock market followed by a happy and prosperous new year, Richard Bernstein has a lump of coal to put in your Christmas stocking. The chief U.S. strategist at Merrill Lynch in New York yesterday cut his equities allocation to 45% from 50% yesterday, declaring that the market is highly speculative, that his 12-month target for the S&P 500 index remains at 860 -- 7% down from here -- and that such speculation typically does not mark the dawning of a new bull market. The S&P 500, Wall Street's benchmark, fell for the third straight session yesterday and Bernstein's bearish stance was cited on the wires as a contributing factor to the stalling out of the rally. Though the market was looking poised for at least some short-term profit-taking after such an explosive rally, Bernstein's pessimism has generally served his clients well and his reputation and clout, unlike those of some of his strategist peers such as Abby Joseph Cohen, have grown. Indeed, in the small rarified world of Wall Street strategists, Bernstein appears to be adding insult to the injury to reputations because he's predicating at least part of his strategy on the fact that the consensus of his counterparts is usually wrong. He says Merrill's "sell side indicator," based on a survey of Street strategists' recommended asset allocations between stocks, bonds and cash, is the company's most reliable market-timing barometer. "We have found, when adding a little math, that Wall Street's consensus equity allocations has historically been a reliable contrary indicator." "In other words," Bernstein says in a report to clients, "it has historically been a bullish signal when Wall Street was extremely bearish, and vice-versa." The indicator's latest reading last week shows the average strategist is recommending clients hold 68% of assets in stocks, 24% in bonds and 8% in cash or short-term securities - versus Bernstein's 45% stocks, 35% bonds and 20% cash, which makes him the only strategist to recommend less than 50% in equities. Compare that to stance of UBS Warburg's Ede Kerschner, who is calling for 88% in stocks and 12% in bonds, with zero cash. And while Bernstein's S&P target of 860 over the next 12 months remains among the lowest of those surveyed by Bloomberg, other targets have been ratcheted down over the past two years as the bear market grinds on. Some investment houses have abandoned trying to set a target entirely and several strategists have left to pursue employment opportunities elsewhere. Bernstein says the sell side indicator improved slightly this month, indicating an improvement in the 12-month expected return to a drop of "only" 15% from almost -20% previously. The indicator's "history clearly shows that equities became the 'asset class of choice' at the end of the bull market," Bernstein says. "For the majority of the bull market of the '80s and '90s, Wall Street actually recommended underweighting equities. History suggests it is doubtful that a meaningful, fundamentally based bull market can be sustained when equities are the 'asset class of choice.'" Merrill's chief strategist puts the contrary sell side indicator at the top of a list of eight existing signs of speculation that makes Merrill doubt the consensus view that a bull market is under way. The other seven are: - Investors seem to be ignoring the unpredictability of earnings, which cries out for lower valuations. - Lower-quality stocks sell at premium valuations to higher-quality ones, meaning that investors are actually paying more to take risk. - High beta (more volatile) stocks are selling at higher relative valuations than during the technology bubble, which again confirms the contention that investors are paying to take risk. - Investors are generally ignoring geopolitics or assuming positive outcomes, with valuations failing to reflect one of the most, if not the most, unstable world environment in 20 years. - Continued use of pro forma and operating earnings per share suggests that investors' scrutiny of company reporting is largely unchanged. Why question the quality of a company's earnings if its stock is going up? - Momentum is still the No. 1 investment criterion, with fundamentals a secondary consideration. - The "Greenspan Put" seems alive and well. Investors have put too much faith in the ability of Federal Reserve chairman Alan Greenspan and his colleagues to put a safety net under the market by easing interest rates. A put is basically a bet that the market is going to go down. Bernstein notes that because of this speculative behaviour, Merrill's fixed-income strategist has reduced his allocation to red-hot corporate bonds in favour of U.S. treasuries, too. whanley@nationalpost.com © Copyright 2002 National Post Thanks for the explanation of your trading techniques. I'm hoping to make a little money and have some fun doing it too. RtS