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Strategies & Market Trends : Galapagos Islands -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (36720)	4/14/2003 11:51:58 PM
From: stevenallen	Read Replies (1) \| Respond to of 57110

Bullish? Not Mr. Rick schaeffersresearch.com ent/observations.asp?ID=7485 There are Different Degrees of Bearishness By Rick Pendergraft (rpendergraft@sir-inc.com) 4/14/2003 3:26 PM ET Much like the animal kingdom, there are different kinds of bears in the marketplace. You have cute little Koalas, passive Pandas, and big bad Grizzlies. My feelings toward this market have progressed during the past few weeks from "Koala bear" to "Grizzly bear." As most of you know, we at Schaeffer's use a three-sided approach to help us predict the future direction of the market. The three types of analysis are: sentiment, technical, and fundamental. I'm currently getting bearish feedback from all three. Sentiment If there's one single sentiment indicator that I rely on more than any other, it's the CBOE Market Volatility Index (VIX – 26.88). I generally watch the percentage changes in the VIX to get an idea of whether fear is rising or falling. During the past seven sessions, the VIX has fallen approximately 22.5 percent from its high on April 4. The VIX hit 34.39 that day and has dropped as low as 26.64 today. The last time the VIX was this low was January 14. Another disturbing fact is that since its closing price of 446.7 on April 4, the S&P 100 Index (OEX – 447.56) has basically been flat while the VIX has plunged. By the way, take a look at a chart of the OEX. January 14 marked the highest closing price the index has seen so far in 2003. Technical I hate to keep harping on the 10-month moving average as potential resistance, but it still stands as a big hurdle for this market to overcome. Look at charts of the Dow, the S&P 500 Index (SPX – 881.02), and the OEX, and you'll see that the 10-month has capped these indices for almost two-and-a-half years. Unfortunately, this is not the last hurdle on the track. It's just the middle of the race. Fundamental I know there were some positive earnings released this morning, but let's look at the three biggest ones: Bank of America (BAC: sentiment, chart, options) , Citigroup (C: sentiment, chart, options) , and Fannie Mae (FNM: sentiment, chart, options) . All three of these companies should be doing well at a time when interest rates are at historically low levels. FNM should be setting records given the way the housing market has been doing for the past year and the amount of mortgage refinancing that is taking place. Meanwhile, BAC and C are able to borrow at the lowest rates in the last 40 to 50 years. They're also paying considerably less for customer deposits. Granted, these two entities are more than just depository institutions, but this is still part of their business. Fundamentally the economy is also weak. Just look at what's going on in the labor market. Payrolls have declined by almost 500,000 during the past two months alone. If the average salary for these jobs was $40,000 per year, the amount of personal income lost during the last two months equates to $1.5 billion per month. It's been the consumer that has propped this economy up for the better part of two years now, but if they continue to lose their jobs, how are they going to continue to do so? As a former banker, I can attest to the fact that it's hard to get a loan approved if the borrower has no income. I've been following the market now for approximately 18 years. Even though I haven't been paid to follow the market for all of that time, I honestly can't remember a time when I've felt more bearish about the overall market. - Rick Pendergraft (rpendergraft@sir-inc.com)