Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: James F. Hopkins who wrote (22774)	7/30/1998 8:53:00 PM
From: Monty Lenard	Read Replies (1) \| Respond to of 94695

Jim, you remember the 200 Day Moving Average scans I ran and we discussed a while back? There was an article in Business Week Online today concerning that very thing. The author stated that something like 67% of the NYSE stock were below their 200 DMA. This is within a couple of %age points of what my scans show. Makes me feel a little more confident in the validity of my information plus I thought it was interesting that he commented on the very thing we have been testing. Anyway, todays scans I have been running on Adv Dec Issues sure made a turnaround. In fact, the turnaround was so drastic that it is almost suspicious. The issues gaining on the 200 DMA was not so impressive but it takes a little longer for that indicator to react. Today could very well be a reaction to the oversold condition we were in. We saw a 90 point gain on 7/27 with a reversal the next day so who knows? The one thing that makes me wonder though is the Adv vs Dec Issues and the Adv vs Dec Volume. Monty

To: James F. Hopkins who wrote (22774)	7/30/1998 9:03:00 PM
From: Kip518	Read Replies (1) \| Respond to of 94695

Jim, you wrote If I go long again it will be after I see the small caps make up their mind to run From tonight's BARRON'S Online Weekday Trader Small Caps' Time May Be Near By VITO J. RACANELLI Talk to small-cap fund managers these days, and you're likely to hear groans of despair. Because while investors continue to pile into big blue chips like Coca Cola,ÿ Pfizer and Home Depot, they're avoiding smaller stocks like the plague. Funny thing is, they're snapping up big-capitalization stocks even though they know those companies' earnings are expected to show only single-digit growth this year and next. The big-cap stocks are benefiting from investors' thirst for liquidity: With market valuations at or near all-time highs, investors want to be able to easily get out while the getting's good. That's why all the major large-cap stock indexes have posted healthy double-digit gains this year -- evenÿ after the recent market selloff. Meanwhile,ÿ the Russell 2000 Index -- the most widely used measure of small and midcap stocks -- is down about 2.5% this year. In fact, small-cap stocks -- stocks whose total market value is less than $1 billionÿ --ÿ have underperformed big-capitalization stocks for about four years now. And if you believe the bearish pundits and media reports, there's no end in sight to the doom and gloom. Yet not everyone is throwing in the towel. Indeed, some small-stock fund managers say that these stocks' sharp underperformance could present an historic opportunity to buy the fastest-growing companies in the U.S. at record low prices. Why now -- finally?ÿ In a word, valuation. The gap in P/E multiples between big and small has gotten so extreme that sooner or later investors are bound to view the big companies as much too expensive,ÿ especially as their earnings and economic growth slow. Although few are willing to predict that will happen tomorrow, many think it's likely to occur sooner rather than later. Dick Sinise, a portfolio manager at Kennedy Capital Management in St. Louis, says that small caps will probably underperform a bit longer, but that the gloom "is so intense and there is so much negativity, that it makes you think the bottom is close." "There's been much more viciousness than I've seen for years," says Charles Rinaldi, a portfolio manager at Strong Small Cap Value Fund. The underperformance "seems to be at a very advanced stage," he adds. Historically, the Russell 2000 trades at a premium to the S&P 500, "yet right now the mean Russell 2000 trailing price-to-earnings (P/E) ratio is the lowest it's been since 1979," says Kenneth Kailin, a small cap portfolio manager at Skyline Asset Management in Chicago.ÿ At June 30, it stood at 0.81 of the S&P 500's mean P/E, the bottom of a historical range of 0.81 to 1.3 times the S&P's P/E since 1979, he notes. And smaller companies' earnings grow faster than big companies'. The average profit growth in the S&P 500 this year and next is expected to be less than 8%, while earnings growth in the Russell 2000 should be around twice that, says Kailin. "There will come a point where these stocks can't be ignored. You might pass up a penny on the street but you won't pass up a dollar," he observes. .... When will the pounding of small caps end? Of course nobody can say for sure-- and some have bet on it prematurely. "I said six to nine months ago that the valuations were too cheap and all that has happened since then is that the disparity has worsened," notes Robert Perkins, who runs the Berger Small Cap Value Institutional Fund. (For an interview with Perkins, see "Sleeping Well By Buying Small Caps," Electronic Q&A, May 19.) But Perkins has a long memory and he believes that eventually "true value wins out." Perkins remembers the 1970s craze for the original Nifty Fifty -- and its demise. "The relative valuation disparity [between big caps and small] is as great today as virtually any time I can recall in the last 30 years," says Perkins. And while liquidity is driving the market today, "that's the weakest reasonI can find [to buy a stock] on a long-term basis," he asserts. "It's like musical chairs, and when the music stops ... the best relative performance will be in the small caps." Right now, size matters on Wall Street. But the bigger the large caps' multiples get, the more affordable the small caps will look. And before too much longer small could be beautiful again.

To: James F. Hopkins who wrote (22774)	7/30/1998 9:29:00 PM
From: Bonnie Bear	Read Replies (1) \| Respond to of 94695

Jim: Greenspan floods the market with liquidity before he speaks publicly so he won't be blamed for the market tanking at his words. Also, something is very odd about Rubin begging the Japanese government to do something about their banks. Maybe the liquidity is for the benefit of US multinational banks. The collective size of the banking bubble is a lot larger than the tech bubble IMHO. Gosh, lots of stuff looks ridiculously cheap here, either that, or things are going to get a lot worse, unimaginably worse soon. Look at SOA, MXE, CH. Mexico and Canada are our biggest trading partners, this kind of beating of Mexico look horrible for our economic prospects in the absence of Canada. How much worse can Mexico get? Maybe Rubin and the IMF is about to have another large problem on their hands. The more I look at this market, the more I like my REIT and utility CEFs. Nothing beats a reinvestable monthly dividend in a bear market.