The 2003 - 2004 Bull Market Is Underway
By Donald Rowe,
The Wall Street Digest
The Dow Industrials bottomed on March 12, 2003 at Dow 7,416. This was a major bottom and probably the bottom for the decade. Edward Yardeni, chief investment strategist for Prudential Securities, is forecasting Dow 10,500 by year-end.
I firmly believe we will see a new all-time high for the Dow Average and the S&P 500 by Election Day 2004. Here's why:
The Wall Street pros and the Smart Money are very bullish:
1) The commercial traders of the S&P 500 futures contracts (the Wall Street pros) are now net-long after being net-short for the past three years. To help you capture the significance of this "net-long position," keep in mind that the commercial traders went net-short in March of 2000 and stayed net-short for three years.
The S&P 500 was down 10.1 percent in 2000, down 13.1 percent in 2001, and down 23.3 percent in 2002.
As we go to press with commercial traders net-long the Dow Industrials are up 4.5 percent year-to-date, the S&P 500 is up 7.6 percent year-to-date, and the Nasdaq is up 16.2 percent year-to-date. You have heard the expression: "Never bet against the Fed."
The same is true with the Wall Street pros! They are never on the wrong side of the market. Perhaps that is why some market observers call them "market makers."
2) The Smart Money continues to purchase stocks in the final hour of trading. Stock prices gyrate during the morning in reaction to economic news and the overnight performance of the global markets. Between 12:00 and 2:30 p.m., the traders and stockbrokers go to lunch, which leaves the market vulnerable to the short-sellers.
Be sure to observe the stock market performance between 3:00 and 4:00 p.m. If stock prices move higher during the final hour of trading, the Smart Money is buying.
If stock prices are consistently moving lower in the final hour of trading, you know the Smart Money is exiting the stock market and you should not be picking up bargains on last hour pullbacks. Right now, the Smart Money and the Wall Street pros are both taking bullish positions in anticipation of much higher stock prices ahead.
3) Junk bond prices are soaring! They always do right in front of an economic recovery.
And when junk bond prices rise, so do stock prices. They move up and down together. Why do junk bond prices rise (yields fall) while the economy recovers? Because a stronger economy reduces the risk level for all bonds. Obviously, the corporate bankruptcy rate declines during an economic recovery. Junk bond yields fall dramatically during an economic boom because the risk level falls.
However, Treasury bonds and AAA corporate bond yields tend to rise (prices fall) as the economy gathers momentum because inflationary pressures rise.
I believe the easy money has already been made in the bond market. The U.S. stock market is the single best place to be. Stock prices will continue to rise during this 2003 2009 bull market, while bond prices will fall as inflationary pressures gradually rise!
Why Am I Forecasting A 2003 2009 Bull Market?
Do you remember the recession and bear market of 1970, 1971 and 1972?
Do you remember the recession and bear market of 1980, 1981 and 1982?
Do you remember the recession and bear market of 1990, 1991 and 1992?
Do you remember the recession and bear market of 2000, 2001 and 2002?
No one knows why this ten-year cycle of recession and bear markets occurs. It just does. Between now and 2009, investors will be able to make all of their losses back and a great deal more. Over the next seven years, we should be able to double our current wealth more than twice.
But you will have enormous difficulty doing so if you continue to listen to Wall Street analysts.
Unlike the commercial traders of the S&P 500 futures contracts, who are always on the right side of the market. Wall Street analysts are always on the wrong side of the market. In the chart below, notice that Wall Street analysts issued far more buy recommendations during 2000, 2001 and 2002 when the market was consistently down. Now look at 2003. Now they are on the wrong side of an up market!
Wall Street Analysts'
Buy And Sell Recommendations
Year Buy Sell Hold S&P 500
2000 74% 25.4% 0.6% -10.1%
2001 67% 32.2% 0.8% -13.1%
2002 60% 36.0% 4.0% -23.3%
2003* 36% 47.0% 17.0% 7.6%
*through 5-16-03
The difference is a simple case of motivation: The commercial traders work for themselves, seeking a profit, while the Wall Street analysts work for large brokerage companies, seeking job security and a hefty year-end bonus. The analysts can accomplish both objectives if they issue stock recommendations that help their employers' brokerage companies capture investment-banking business.
Did the recent $1.4 billion Wall Street settlement solve the "corrupt analyst" problem?
I doubt it. Here's why: Citigroup owns Goldman Sachs. CEO Sandy Weill "generously" offered to pay $400 million of the $1.4 billion settlement fee that was to be split among the ten largest brokerage companies. Between 1999 and 2002, Goldman Sachs generated over $10 billion in profits from investment banking deals.
A fine of only four percent of the company's ill-begotten profit does not seem commensurate to the "crime."
Stated another way: Crime does pay when the cost of "doing business" is only four percent of the profit. Just getting this scandal off the front page helped launch the current bull market. Perhaps that was the objective of the settlement. Historically, the individual investor waits until a bull market is half-over before returning to the equity markets. You must not wait that long!
The old Wall Street adage of "Sell in May and go away" does not seem to apply this year due to the three-year bear market.
The Wall Street pros, the Smart Money, and yes, even Warren Buffett are busy buying stocks to become fully invested in front of the 2003 - 2009 bull market. We can make a great deal of money between now and the next 2010, 2011, and 2012 recession and bear market. I am listing below the ten best stocks to purchase right now if you are not yet fully invested.
If you are still in cash, purchase the following ten stocks first: Altera Corp. (ALTR), Biosite, Inc. (BSTE), Documentum, Inc. (DCTM), Diodes, Inc. (DIOD), Foundry Networks, Inc. (FDRY), Lexar Media, Inc. (LEXR), Packeteer, Inc. (PKTR), Sandisk Corp. (SNDK), USA Interactive, Inc. (USAI), and Value Click, Inc. (VCLK) all listed on the Nasdaq.
Editor's Note: Donald Rowe is editor of The Wall Street Digest, 8830 South Tamiami Trail Ste. 110, Sarasota, FL 34238, 1 year, 12 issues, $150. www.wallstreetdigest.com. |
