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Strategies & Market Trends : The Stock Market Bubble -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (933)	8/3/1998 8:52:00 AM
From: Arik T.G.	Read Replies (1) \| Respond to of 3339

David, I see your point. But look at the difference in the Russell 2000 in said periods. In '96 the Russell took the hit from end May to mid July, and recovered August-September. This time the Russell dropped from 4/21 to 6/15, failed to recover and dropped lower. ATG

To: Moominoid who wrote (933)	8/3/1998 1:59:00 PM
From: Les H	Respond to of 3339

Wall St. flight to safety may turn to insanity By Pierre Belec NEW YORK (Reuters) - Wall Street has been riding a fabulous bull market with the economic chaos in Asia bringing a flood of capital to U.S. stocks. But the market now seems to be priced out of this world and there's fear the flight to safety may prove to be a flight to insanity. Stocks have been rocketing for 3-1/2 years, thanks to double digit gains in U.S. corporate earnings. In the last six months, the market got an extra boost from the Asian crisis, which attracted boatloads of foreign money to U.S. shores. But experts say stock prices are higher than earnings will justify for the coming year and investors are overlooking too many bearish signs. Corporate earnings are disintegrating, having fallen well below a year ago in the first two quarters of the year. The big question is how long can investors continue to dismiss the disappointing results? Don R. Hays, chief investment strategist for Wheat First Union in Richmond, Va. said Wall Street will get a wake up call in the third quarter when earnings will not improve. It could send foreign money to the exit door. "As the U.S. economy starts to show a few cracks, the market will lose the one big driving force, which has been the flight to safety of money from overseas," he said. The market could be hit by the kind of nasty sell-off that knocked the Dow Jones industrial average in 1966 from a high of 1,000 points to 800. "There could be a lot of weakness with the Dow falling to 5,500 to 6,200," Hays said. "Traditionally, there is a 40 percent decline in the market every four years but we haven't had a serious correction since 1982-83." The experts say the tremendous earnings gains of 1997 had set a high-water mark for the time being, but they see few good earnings stories this year. Second-quarter earnings are expected to be up only 4 percent over the same quarter of 1997 when profits leaped 11 percent. The first quarter was also a disappointment with profits growing only 3.8 percent vs. a mouthwatering gain of 15.1 percent a year earlier. Hays, a Wall Street veteran, is not alone in seeing dark clouds on the horizon. Greg A. Smith, chief investment strategist for Prudential Securities and one of Wall Street's best market readers, told his clients to take some of their money out of stocks and put it into bonds. Morgan Stanley Dean Witter's Chief Global Strategist, Barton Biggs, cut back the portion of his U.S. stock portfolio and said a downturn in global stocks could wipe out 20 to 30 percent off Wall Street stocks. Hays expects stocks to reach a peak in August. The market is already showing signs of having run out of upward momentum. A week ago, the Dow posted its biggest weekly point loss ever as it tumbled 400 points and the sell-off spilled over to this past week. The blue-chip index is down about 4 percent from its mid-July record high of 9,337. Hays said that a handful of stocks have disguised the real market action since the start of the summer. The big-name stocks have been soaring while the smaller names are struggling. "The large-cap indices are going to try one last fake-out move in the next few weeks ... even making new highs in the process," he said. Don't be fooled. "It will be the last one and after this rally, the big caps will give up the ghost, and we'll be involved in a bear market that will be very evident in October, the month for crises on Wall Street." Short-term rallies will support the market but they will set the stage for the more serious damage, he said. The situation is risky because the market has become overloaded with bullish investors. The other problem is that the market has risen so fast that it may no longer be a safe haven for foreign money. "The U.S. is not safe enough to support a 29 price/earnings ratio, which is the average of the companies in the Standard & Poor's 500 index," Hays said. Indeed, foreign money has been pouring to U.S. stocks. In the first quarter, foreigners bought $29 billion of stocks, up 340 percent from $6.6 billion in the same 1997 quarter. The bear market could last "at least six months" or perhaps longer, he said. For Wall Street, it will not be a case of the economic story coming to an end but rather that cost pressures are creeping up on corporate earnings. "We have been the beneficiaries of an amazing trend where wages and benefit costs have been going down for the last 10 years but now that has reversed," Hays said. "The companies are facing zero pricing power because of competition with Asian countries and the earnings are being pinched because of declining profit margins," he said. What could speed the arrival of a bear market? "The Canadian currency crisis could prove to be a problem for the U.S. markets because Canada is America's biggest trading partner," Hays said. The collapse of Asian economies has cut deeply into Canadian exports of commodities such as pulp and metals, sparking a headlong slide in the Canadian dollar. Now, Canada faces the risk of a crisis of confidence in its currency, which could spread to the United States. For the week, the Dow was off 54.07 points at 8,883.29. The Nasdaq composite index was off 58.60 at 1,872.39. The Standard & Poor's 500 index lost 20.13 at 1,120.67.

To: Moominoid who wrote (933)	8/3/1998 2:02:00 PM
From: Les H	Read Replies (1) \| Respond to of 3339

Bloch Weekly Technical Market Report "A RALLY TRY" Below are last week's closing comments. "Our 'guess' of a 2%-3% drop fell into place - so far!! Using intraday figures, the DJI has fallen 4.4%, and using closing figures, 2.2%. As we said Wednesday - these numbers aren't etched in stone. So, we need to 'see' other things in order to get bullish. The first thing we need to see when the first rally try begins is how much volume is generated, and what kind of Breadth readings do we see? Really low volume and really lousy A-D figures would suggest a 'vacuum-filling' rally that should be sold into - let's wait!!" The Investors Intelligence Advisory figures peaked last week. They were significant, but not quite a disaster. This Week Last Week Bulls 52.5% 54.3% Bears 26.3% 23.3% Correction 21.2% 22.4% Monday 7/27 On Friday, we felt that a rally try could start any time between then and Tuesday. Friday's action was "practice" for Monday. Down 82 at 10:00 a.m. led to several moves before a rally began at 1:00 p.m., which got legs late to close plus an impressive 91 points - a solid reversal! A market that, measured by Breadth, was very oversold, plus Mr. Biggs from MWD called for a 20%-30% bear market. Be aware that he basically said the same thing at the low last October. Volume was 618 vs 682, which was high for a Monday. $'s flowed from Bonds into equities, as they fell 10 ticks. A 5-3/4 point gain by AXP and gains of more than 2 points in CHV, GM, UTX were 43 points of gain. The RUT fell 5-1/2 and is down 6-1/2% the past six days - wait for a group to start up so you're not guessing!! The OEX P-C Ratio was 114% at 11:00 a.m. and 122% at the bell - lower readings into further rally tries would be a negative. Higher readings into strength are a plus. At its worst, the A-D Index showed nearly 1700 net declines. Final readings were 1130 net negative. It is now 14711 from a new high. It fell below its prior reaction low in June, as did the RUT. NASDAQ reversed sharply from down 43 to end plus 2-1/4 points - dramatic, to say the least and most impressive!! Leaders were the usual - MSFT, INTC, DELL, etc. The NDX index, which is a closer measure of the big Technologies, rose a whopping 17-3/4, having been off 54 - holy smoke!! What happens after a selloff and positive reversal? As always, there are several possibilities. First - a "V"-type reversal, where the Market just runs in a straight line with little or no pause. This is always possible, but it's a lower percentage play. Second - the list undergoes a more usual reaction low (Monday) - rally (Monday was a start) - test of the lows. That's a higher percentage bet, and one that I would prefer. The key items to watch during any further rally tries will be volume and breadth - let's see. Tuesday 7/28 There are just too many "Monica" jokes to relate - so, I'll act mature (for a change) and pass. At any rate, the news about "Monica" placed some additional pressure on a market that was already greatly weakened. Why, I'm not sure -- more uncertainty. The list opened 56 lower and fell to minus 200 pre-1:00 p.m. - rallied to down 122 -- down 212 at 2:30 and ended down "only" 93 points on volume of 699 vs 618. Bonds fell 12 ticks for the futures. Remember that the Market always does what it was going to do, but sometimes, news events exacerbate a trend already in force, such as those huge sell programs that rolled through Tuesday. The OEX P-C Ratio frightened me as it fell into weakness to 110% at 11:00 a.m., 104% at noon, 132% at 2:30 p.m. and 130% at the bell - should be higher, given the Market's weakness. Does it drop in the next rally?? I'm out of adjectives trying to describe an A-D Index that is just getting shredded!! There were 1337 net declines, putting it 16048 from a new high. NASDAQ fell sharply by 36-3/4 points, almost giving up what it made during Monday's reversal. The NDX Index dropped by 33 points. NASDAQ is now down 5.8% on a closing basis. Using the trendline scale, we find the Market is finally in legitimate oversold territory with a reading of minus 5.5. That's the lowest it's been since October 1997. In Tuesday's letter, we discussed two possibilities for the Market. I forgot to discuss the third - namely, that it just goes lower!! Can Tuesday be viewed as a "test"? It can, but it was very flawed. Most "tests" show some signs of relative strength via lower volume and better Breadth - neither of these was present Tuesday. So, we still need to see more and better data before I can get excited. A lower opening leading to a higher close would help. Wednesday 7/29 "Mr. President, you have until sundown to get out of town!!" An interesting morning, as the list opened plus 60 by 10:00 a.m. It then fell to down 28 -- down over 40 late, with a close of off 20. Volume fell to 634 vs 699, and Bonds fell 6 ticks for futures. The DJT fell sharply, by 75 at worst, and ended off 69 points at 3245. This is below its early June reaction low of 3250, and this constitutes one-half of a Dow Theory sell signal. If the DJI breaks below its equivalent June reaction low of approximately 8626 (closing), that would be a full sell signal. What does this generally mean? History suggests that this type of signal comes late, and px's generally fall a little bit more, and that's it!! IBM rose 2-1/2 points, and that washed the WMT loss. The OEX P-C Ratio rose sharply (thank goodness) to 163% at 11:00 a.m., 165% at noon and fell a bit to 134% at the bell - still o.k. The A-D Index looked good at 10:00 a.m., as it posted 926 net positive at that time, as the DJI was plus 60. However, as the Market fell to minus 53 at 3:00 p.m., the A-D Index collapsed to close with 290 net declines - awful!! It has now fallen 13 days in-a-row!! NASDAQ was plus about 19 at best. It too fell to end down 15 points, which was a worse performance than the DJI. DELL, MSFT, INTC, CSCO all fell, but the real culprits were the Internet stocks, which got hurt pretty good. CONCLUSION: The DJI has been "holding" within the 8825-9025 range the past four days. These have been characterized by high volume and a great deal of volatility on both a day-to-day basis and intraday - just what we had outlined was needed for a bottom. It now had better start up and out of this pattern - real soon! Volume and Breadth during a rally try will be critical.