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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Return to Sender who wrote (39783)	6/22/2003 4:21:46 AM
From: Johnny Canuck	Respond to of 71541

The Bullish Case - "Cash Is Trash" Fuels The Market For Now Email : info@otcjournal.com URL : otcjournal.com To OTC Journal Members: The stock market is in a good solid uptrend. It is undeniable. [Image] Even the staunchest of Bears has gone into hibernation. 71% of market pundits are bullish at this time (normally a good contrary indicator). Traders are being blown out of put options left and right (myself included), and short sellers have gotten their brains beat out in this incredibly persistent rally which began in Mid March. This chart of the S&P 500 shows the long term technical picture. I have included two very simple technical indicators. The Red Line is the long term resistance trend line drawn from the October high in 2000; the point at which the Bear sunk his teeth into investors. For the past three years, every time the market tried to get through this resistance line it was repelled.- Until Now In early May the S&P 500 finally broke through the downtrend line convincingly, forcing many technicians to reevaluate their bearish stance. The Yellow Line represents the simple 200 day moving average. This line is considered a benchmark for the long term health of the market. Indexes trading above their 200 day moving averages are considered in an uptrend. The S&P 500 solidly breached the 200 day moving average several weeks before the long term downtrend line was pierced. All in all- This is a very bullish chart. Yet despite mounting technical evidence that we are back in a bull market, economic results are anemic at best. So what's fueling this exciting rally?- Liquidity- cash looking for a return. Do you know just how much fuel is looking for a fire? * According to TrimTabs, a record $5.3 trillion in cash is sitting on the sidelines (savings accounts, CDs, money market funds, etc.). This amount is equivalent to 51% of the value of the entire US stock market. The last time the cash-to-market ratio was this high was 1990, when the cash-to-market cap ratio stood at 49.5%. The S&P 500 moved 30% higher the following year. * The Fed has pushed interest rates to 40 year lows- Interest rates haven't been this low since the Eisenhower administration. If you have your money in a CD or money market account, after factoring in taxes and inflation, you are losing money (about 1.5% annually; hence- cash is trash). * Mutual fund inflows picked up dramatically in June- $3 billion flowed into equity funds the week ending June 4. $5 billion flowed in the next week after a month of outflows in May. * Under funded pension plans must be reloaded, and the money has to go somewhere. Trillions will flow into the markets as major corporations reload their pension plans and invest the capital. Over the past three years our economy has absorbed four serious body blows which might have crippled a lesser fighter. The US economy is definitely the Mohammed Ali of the world's economies. Like Ali in 1974 against George Foreman in the "Rumble in the Jungle", the US economy seems to be able to withstand devastating blows and come back fighting. The tech bubble burst, followed by 911, followed by Enronitis, followed by war with Iraq. Yet, despite these potentially devastating events, we are still cruising along at a moderate 2% annual GDP growth rate with no inflation. Is it possible our economy is stronger than anyone realizes? Could our economy come back and win the fight in the 8th round the same way Ali beat the larger, stronger, and heavily favored George Foreman? The recent rebound in the market is a liquidity rally- fueled simply by demand outstripping supply. So- without top and bottom line growth- can the rally continue? [Image] Hold The Phone- Did S&P Earnings Rocket In the First [Image] Quarter? [Image] Here's a bar chart of S&P 500 reported quarterly earnings. These are earnings net of one time charges, and generally the earnings which appear in tax returns. Reported S&P quarterly earnings challenged the $14 level during 2000, then fell off a cliff into mid 2002. We had a brief rebound, only to end at an incredibly low $3.00 in the December 2002 quarter. What the heck happened in the March quarter of 2003? Could S&P earnings really have rebounded from $3 to $11.91 in just one brief quarter? The answer is Sort Of. As we have chronicled in past editions, many companies used the bear market environment as an opportunity to rid the financial statements of dead wood. Companies aggressively wrote down inventories, accelerated depreciation, absorbed costs associated with layoffs, and became lean mean during the Bear Market when share price was not a consideration. This "purging" of financial statements peaked in the fourth quarter of last year in conjunction with setting the bear market low this past October. The net result- a moderate top line increase of about 5% yielded $11.91 in reported quarterly earnings for the S&P 500- on the surface an outstanding rebound. The numbers are misleading and exaggerated but serve to illustrate the point. Companies are lean and mean. The gap between reportable earnings and operational earnings will be very narrow for some time. Incrementally small increases in the top line can lead to disproportionately positive bottom line increases for companies with 3% body fat. [Image]Where To From Here?[Image] In this "Hope and Faith" rally, the market may have charged up [Image] a bit too far too fast. Nearly everyone agrees a correction would be healthy right now. If the market extends too far the inevitable correction will be too violent, sending investors fleeing to the exits once again. This liquidity rally has limits. In order for the Bull to continue to rage, we need growth; growth in both the top and bottom line. In order to buy into the concept of a sustained bull market, you must be willing to believe that fiscal stimulus will work. You must believe low interest rates will force investment, which will foster growth. You must believe the tax cut package will put a surge of liquidity into the economy. You must hope the worst of geopolitical events are behind us. You must believe 3% to 3.5% GDP growth will come back, and bring job growth with it. For those who want to wait for top and bottom line growth before getting back into the market you might want to consider the following: The Market is generally a leading indicator, not a lagging indicator. Today's market direction tells us where we will be in six months. After all- the market got slaughtered in 2000, six months ahead of a 35% drop in S&P earnings, and continued down for the next three years. If the market had it right then, why can't it be right now? I'm sure about one thing- As always, with the stock market there are no guarantees. But if you wait for the economic numbers and earnings to confirm the turnaround, you'll miss most of it. ---------------------------------------------------------------------- [Image] ---------------------------------------------------------------------- Charts Provided Courtesy Of TradePortal.com Disclaimer The OTCjournal.com Newsletter is an independent electronic publication committed to providing our readers with factual information on selected publicly traded companies. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible. Moreover, as detailed below, this publication accepts compensation from certain of the companies which it features. Likewise, this newsletter is owned by MarketByte, LLC. To the degrees enumerated herein, this newsletter should not be regarded as an independent publication.

To: Return to Sender who wrote (39783)	6/22/2003 4:22:55 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71541

The Bullish Case - "Cash Is Trash" Fuels The Market For Now Email : info@otcjournal.com URL : otcjournal.com To OTC Journal Members: The stock market is in a good solid uptrend. It is undeniable. [Image] Even the staunchest of Bears has gone into hibernation. 71% of market pundits are bullish at this time (normally a good contrary indicator). Traders are being blown out of put options left and right (myself included), and short sellers have gotten their brains beat out in this incredibly persistent rally which began in Mid March. This chart of the S&P 500 shows the long term technical picture. I have included two very simple technical indicators. The Red Line is the long term resistance trend line drawn from the October high in 2000; the point at which the Bear sunk his teeth into investors. For the past three years, every time the market tried to get through this resistance line it was repelled.- Until Now In early May the S&P 500 finally broke through the downtrend line convincingly, forcing many technicians to reevaluate their bearish stance. The Yellow Line represents the simple 200 day moving average. This line is considered a benchmark for the long term health of the market. Indexes trading above their 200 day moving averages are considered in an uptrend. The S&P 500 solidly breached the 200 day moving average several weeks before the long term downtrend line was pierced. All in all- This is a very bullish chart. Yet despite mounting technical evidence that we are back in a bull market, economic results are anemic at best. So what's fueling this exciting rally?- Liquidity- cash looking for a return. Do you know just how much fuel is looking for a fire? * According to TrimTabs, a record $5.3 trillion in cash is sitting on the sidelines (savings accounts, CDs, money market funds, etc.). This amount is equivalent to 51% of the value of the entire US stock market. The last time the cash-to-market ratio was this high was 1990, when the cash-to-market cap ratio stood at 49.5%. The S&P 500 moved 30% higher the following year. * The Fed has pushed interest rates to 40 year lows- Interest rates haven't been this low since the Eisenhower administration. If you have your money in a CD or money market account, after factoring in taxes and inflation, you are losing money (about 1.5% annually; hence- cash is trash). * Mutual fund inflows picked up dramatically in June- $3 billion flowed into equity funds the week ending June 4. $5 billion flowed in the next week after a month of outflows in May. * Under funded pension plans must be reloaded, and the money has to go somewhere. Trillions will flow into the markets as major corporations reload their pension plans and invest the capital. Over the past three years our economy has absorbed four serious body blows which might have crippled a lesser fighter. The US economy is definitely the Mohammed Ali of the world's economies. Like Ali in 1974 against George Foreman in the "Rumble in the Jungle", the US economy seems to be able to withstand devastating blows and come back fighting. The tech bubble burst, followed by 911, followed by Enronitis, followed by war with Iraq. Yet, despite these potentially devastating events, we are still cruising along at a moderate 2% annual GDP growth rate with no inflation. Is it possible our economy is stronger than anyone realizes? Could our economy come back and win the fight in the 8th round the same way Ali beat the larger, stronger, and heavily favored George Foreman? The recent rebound in the market is a liquidity rally- fueled simply by demand outstripping supply. So- without top and bottom line growth- can the rally continue? [Image] Hold The Phone- Did S&P Earnings Rocket In the First [Image] Quarter? [Image] Here's a bar chart of S&P 500 reported quarterly earnings. These are earnings net of one time charges, and generally the earnings which appear in tax returns. Reported S&P quarterly earnings challenged the $14 level during 2000, then fell off a cliff into mid 2002. We had a brief rebound, only to end at an incredibly low $3.00 in the December 2002 quarter. What the heck happened in the March quarter of 2003? Could S&P earnings really have rebounded from $3 to $11.91 in just one brief quarter? The answer is Sort Of. As we have chronicled in past editions, many companies used the bear market environment as an opportunity to rid the financial statements of dead wood. Companies aggressively wrote down inventories, accelerated depreciation, absorbed costs associated with layoffs, and became lean mean during the Bear Market when share price was not a consideration. This "purging" of financial statements peaked in the fourth quarter of last year in conjunction with setting the bear market low this past October. The net result- a moderate top line increase of about 5% yielded $11.91 in reported quarterly earnings for the S&P 500- on the surface an outstanding rebound. The numbers are misleading and exaggerated but serve to illustrate the point. Companies are lean and mean. The gap between reportable earnings and operational earnings will be very narrow for some time. Incrementally small increases in the top line can lead to disproportionately positive bottom line increases for companies with 3% body fat. [Image]Where To From Here?[Image] In this "Hope and Faith" rally, the market may have charged up [Image] a bit too far too fast. Nearly everyone agrees a correction would be healthy right now. If the market extends too far the inevitable correction will be too violent, sending investors fleeing to the exits once again. This liquidity rally has limits. In order for the Bull to continue to rage, we need growth; growth in both the top and bottom line. In order to buy into the concept of a sustained bull market, you must be willing to believe that fiscal stimulus will work. You must believe low interest rates will force investment, which will foster growth. You must believe the tax cut package will put a surge of liquidity into the economy. You must hope the worst of geopolitical events are behind us. You must believe 3% to 3.5% GDP growth will come back, and bring job growth with it. For those who want to wait for top and bottom line growth before getting back into the market you might want to consider the following: The Market is generally a leading indicator, not a lagging indicator. Today's market direction tells us where we will be in six months. After all- the market got slaughtered in 2000, six months ahead of a 35% drop in S&P earnings, and continued down for the next three years. If the market had it right then, why can't it be right now? I'm sure about one thing- As always, with the stock market there are no guarantees. But if you wait for the economic numbers and earnings to confirm the turnaround, you'll miss most of it. ---------------------------------------------------------------------- [Image] ---------------------------------------------------------------------- Charts Provided Courtesy Of TradePortal.com Disclaimer The OTCjournal.com Newsletter is an independent electronic publication committed to providing our readers with factual information on selected publicly traded companies. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible. Moreover, as detailed below, this publication accepts compensation from certain of the companies which it features. Likewise, this newsletter is owned by MarketByte, LLC. To the degrees enumerated herein, this newsletter should not be regarded as an independent publication.