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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Chris who wrote (12377)	7/20/1998 10:43:00 AM
From: KM	Read Replies (1) \| Respond to of 42787

No, the interest rate environment was vastly different in 1987. I was there trading (don't know what that says about my age ). Great book BTW, especially like the chapter about Linda Raschke, who I still follow.

To: Chris who wrote (12377)	7/20/1998 12:19:00 PM
From: Robert Graham	Read Replies (2) \| Respond to of 42787

If the techs did not once again take the lead, I would say it looked like we going down the same path except for one major difference: market liquidity. There is much more institutional money in this market. It represents over 70% of all the stock holdings out there. This is impressive since we must be talking about 1 3/4 trillion dollars out of 2 1/2 trillion dollars. I do not know how this money will sell off from many of its positions if we were to encounter a market correction, not a small market adjustment. I wonder if this liquidity driven market has something to do with the rounding top? Also I do not know what will impact the instiutions unwinding from their hedged positions when a longer term bear market looks to be in place. What differences in the market do you witness between now and earlier this year when the techs were not leading the market? I think this is important to think about for future reference. At first I thought the market would not continue its rally even though there would be some stocks still doing well. Instead, market liquidity helped here. But then the stock action went other directions including the smaller cap stocks. There was a move more to defensive issues with some occasional plays on select high tech stocks. There was some heavy speculation in some of the small cap stocks with no earnings history which included high tech stocks like the Internet stocks. Now the NASDAQ is back in action along with the S&P 500. The DJIA lags but is catching up. Many of the defensive issues still part of the rally along with stocks from other industries and most importantly the high tech sector. The most notable change besides the incredible participation in the tech stocks is that sentiment is unusually bullish. Look at what happened to INTC reporting shy of consensus and further below whisper numbers. Normally I would say an increase on negative news is the result of institutional money. But in this case I think it is the result of over-anxious public money. I wish I had watched the tape to confirm. It looks like many were waiting for their favorite high tech stocks to once again make the bull run. Now that has happened, it has provided a focus for many people's money and sentiment. It is interesting to note that the small caps have been lagging behind. So even though there may have been a good degree of participation in the market by the public before the resurgence of the techs, it was dispersed in other areas of the market such as the small cap and other speculative stocks. This did not have the same impact on the market as this same public speculative money being focused on the high techs which the NASDAQ index represents. So it looks like the public money will find stocks to fuel their speculative appetites when their leader is not there for them. It does not show up in the same way with respect to the major indices. Still the fund money kept the game alive and well until the rounding top and market adjustment. Didn't the fund money move into some of the industry leadership of the techs which started action back in the high tech stocks? This was where the public money attempted to go earlier when the funds were finding a place to park their money like in CPQ and GTW and others at the time. Now the public money noticed this and ran, not walked, to the NASDAQ tech stocks. It is incredible what difference the speculative public monies can make to this picture once a focus is there for them. I checked MSFT Friday's action on using my new StockEdge service. I see it sent up, but no institutional involvement in the move up by the stock. If this is an indication, the institutional monies may be fully invested in this sector and are riding it out until they sell their position. So what we may be seeing in the NASDAQ is for the most part the result of public money. As far as my question earlier in my post about what is causing the rounding top we say evidence of in our recent past, I have this observation to make. Public money generates price action as a consequence of speculative enthusiasm. We have seen this in terms of the significant surges the NASDAD has been making. Perhaps a blowoff type of top occurs when the public speculative money is in control of the market. On the other hand, if the market is primarily liquidity driven, the accumulation and distribution on the average is more measured and occurs over a set of industries. Sure there may be exceptions if funds find themselves moving into the same stocks and have an urgency in placing their money. CPQ encountered this type of attention from funds which caused it to rocket launch into an uptrend. However, funds tend to accumulate more cautiously over a longer period of time. This type of accumulation tends to be not motivated by sentiment, and profits are taken in periodic rotations. As time goes by, these rotations become more frequent as the group struggles to perform in their profit making which as they act in a group works against them. So I think this would support more of a rounding top than the public money would result in. But when you place the public money back into the equation where it can have focus, the market finds large amounts of sudden energy. A few additional notes: In a liquidity driven market, the funds as a group do not make as much money since they are working against each other in their profit making attempts. Behaving as a group does not work in this environment. This has been proven out with reports of the funds performing substantially less the first part of this year. When the funds money has the public money there to run up prices and sell stock to when they take their profits, the funds will perform better. Also note where the fund money goes. First they went to select more second tier high tech stocks that are in the public eye which were not first tier stocks. This was not to far after a large high tech selloff. They were attempting to take advantage of the undervalued nature of some of the tech stocks that either did not perform compared to their counterpart in the same industry or due to a special short term condition fell behind from its past performance. The companies still could be considered solid . This attracted some of the public money back into the techs except for one important difference. This is when we saw allot of the public money attempting to make a premature play on the first tier stocks. I am sure the mutual funds saw this anxious publics' attempt to get back into the tech sector. Given that the funds need public money to succeed, it should be no surprise that is where we next find the fund money. I think they go where they can expect to attract public money because they need the public to sell into in order to claim their profits. Any comments? Bob Graham