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Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: Patrick Slevin who wrote (41204)	4/24/1998 3:54:00 PM
From: Robert Graham	Read Replies (2) \| Respond to of 58727

My concern of late has been that when liquidity from fund money dries up that we can see the possibility of a "blow off" top. I see this in some respects parallel to your view on how a market sell off can lead to a "blow off" top. The funds have had enormous available money due to sector rotation and the record $37 Billion money inflow from last month. As long as they have much money that needs to place in the market, the market will go up, and corrections will be shallow and short lived. This is IMO what has been creating that "elevator" effect we have been seeing in the averages this year, where for instance during the regular move up by the DJIA, even when the anticipated pullback finally comes, the Dow drops 50 intraday and then still frequently ends up closing on the positive side by the end of the trading day. Fund money has been coming in from foreign and domestic sources. Foreign money looking for their "safe haven" likes the very blue-chip companies that they can recognize like GE for instance. Look at the chart on GE to see this effect. So there is a strong foreign money influence over our DJIA right now. The domestic money has been in search of value which has been primarily the S&P 500 type of companies along with the mid-caps. This is also why I see the S&P 500 as the index to watch closely as a proxy of fund money for the longer term direction of the market. The speculative public money have been moving toward the smaller cap stocks. For example, due to the different primary sources of money, this is why there has been period of times that the DJIA has behaved independantly of the S&P 500 in this market. The S&P 500 has been actually outdistancing the DJIA due to the large amount of domestic money entering the stock market. However, as of late, market breadth has been in a downtrend pattern. Sometimes only a small group of stocks have been keeping the DJIA in positive terratory as for instance during the positive press on the merger activity that happened in the financial sector. The S&P 500 has been consolidating for a period of time now. So this correction we have been seeing that some technicians have been looking for comes as no surprise, even though I do not expect it to be large. I thought the market may be getting ready to move up again until I saw this recent speculative activity in NASDAQ stocks. This did not make sense to me, particularly considering how the S&P 500 has been not responding to the recent price action of the DJIA and NASDAQ. So I was suspicous. This is when I also found fund money accumulating select tech stocks. It apparently was the public money that was primarily responsible for the recent surge in NASDAQ stocks. Still I think the reason the funds are moving into select tech stocks is that they have nowhere else to go for the time being due to what appears to me as value concerns. Perhaps this supports the view of a large correction due to marked overvaluation concerns? I wonder. Until the character of the market significantly changes, I do think strong supports will be retested and validated. Perhaps a period of consolidation will ensue. The S&P 500 has been consolidatng for some time now. But I do believe fund money will continue to purchase shares during this period of time. For at what other time can they pick up a quantity of large blocks without impacting the price of the stock they are purchasing? That is why IMO the funds wait for market sell offs to step up their purchasing. When the funds stop stepping up to the plate to aggressively pursue stock purchases is when we have the possibility of a larger market correction. This also depends on the public sentiment at the time, which appears to be very positive right now. I look at the market as basically made up of the public (speculator), the professional, and the funds. The professional I consider to be the very short term players like the day traders on the floor of the exchange and the pros and semi-pros off of the floor. These players take positions of relatively short duration, and from what I have seen can accent short term trends, and are very willing to take the other side of market swings. This is one type of market player that I want to learn more about. The fund money due to their control of well over $2.5 trillion dollars iin the market sets the basic nature of the market which has been bullish this year. The public speculator takes the major trend created by the funds and keeps it moving. The public is also those who supplies the mutual funds with demand for their stock which the funds sell into when they are ready to take their profits and move on into other stocks and sectors. Look forward to future discussion with you on the market. This is the only way I can keep myself "grounded" in my perspective on the market. Bob Graham