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

To: James F. Hopkins who wrote (23178)	8/4/1998 12:34:00 PM
From: RealMuLan	Read Replies (1) \| Respond to of 94695

This is from Briefing.com: How to Spot the Bottom Updated 04-Aug-98 Forecasting at what point the market will reverse course and resume its advance is nothing more than guess work. That's not to say that many of the guesses you've heard or read aren't educated ones, but the fact remains no one knows at what level the indices will bottom out. However, there are a number of indicators worth monitoring for signs that a bottom is just around the corner. Today, we profile those indicators. Mutual Fund Cash Mutual fund cash levels bottomed in April, with only 4.3% of assets held in cash. There are a few analysts who discount this old reliable indicator, noting that while the percentage is low in real terms, given the increase in total assets under management there remains plenty of cash on hand to sustain the underlying bull market. Though there is some merit to this argument, it is important to note that 1997 was another year of record inflows into stock mutual funds. Throughout all of last year, mutual fund cash levels averaged 5.7%, with the lowest monthly reading of 5.1% occurring in December. For a little historical reference, for the 15-yr period of 1979-1994, the percentage of assets held in cash dipped below 8.0% only once. So far this year, we've seen only one month - January - above 5.0%. The average over the six months of available data is an historically low 4.7%. Yes, there is more money under management. But the abnormally low percentage of cash holdings tells us two things. One, managers were very optimistic (through June). Two, portfolio managers are more likely to raise cash levels than lower them. Given current market conditions, managers will be slow to put new cash to work. They might even take some profits off the table to bolster cash reserves. The result of these actions will be a rise in mutual fund cash positions. A move back to the 5.3%-5.5% area would be a strong signal that the indices were positioned for a sustained recovery. Investor Intelligence Indicator Like mutual fund cash, the investor intelligence figures reflect market sentiment. And like mutual fund cash, it is a contrary indicator. In other words, when the figures exhibit strong bullish tendencies the market is probably due for a pullback. In April (again) of this year, the percentage of bearish investment advisors fell to 22.6% - a five year low. Meanwhile, the percentage of bullish advisors now totals 52.5% - just a few points off its 5-yr high of 56%, and comfortably above the generally accepted overbought level of 50%. As the correction unfolds and the speculative excess wears off, the percentage of bullish and bearish investment advisors will move back toward more normal levels. Buy signals will be generated when the percentage of bullish advisors drifts back to the mid- to low-40% area and/or the percentage of bears jumps back to the low- to mid-30% range. Advance/Decline Line Much has been written and talked about concerning the downward trend in the a/d line for the S&P 500. Most alarming has been the divergence between the breadth indicator and the average. Whereas the S&P charged to a new high in July, the a/d line has trended steadily lower since peaking in April (this month just keeps coming up). With market paying so much attention to this indicator, sentiment will improve greatly at first sign that indicator is reversing course. Given that many of the second and third tier names are already down significantly from their 52-wk highs, a recovery in this group shouldn't be too far off. Two straight weeks of positive numbers (in the weekly a/d line) with a strong bullish bias should confirm bottom. L/T Moving Averages Another indicator which has worked well in calling both intermediate-term tops and bottoms has been the convergence/divergence of the 50- and 200-day moving averages. In May (by definition a moving average lags the market) the divergences between the 50- and 200-day moving averages for the major market indices grew abnormally and unsustainably wide. The last time the divergences were this wide was back in August of last year - about two months before the October decline. In so doing, the moving averages, like the other indicators noted above, flashed a warning signal that a top was forthcoming. Sure enough, the indices set nominal new highs a couple months later before embarking on the current correction. Unfortunately, it will take time and/or a prolonged period of sideways to slightly lower prices before the moving averages converge to a buying point. In the DJIA, for example, this indicator won't flash a buy signal until the spread between the moving averages narrows to about 200-150 points.

To: James F. Hopkins who wrote (23178)	8/4/1998 12:38:00 PM
From: Tom M	Read Replies (1) \| Respond to of 94695

Thanks Jim, always interesting. My AG comment was about Alan Greenspan, not AGE if that's what you were thinking. Oh yeah, and I'd also have to add INTC and CPQ to my list of stocks that need a correction. CPQ is up 40% from its low while reporting 0 vs .55 in earnings, and then .02 - even while DELL ties it for #1, and there's evidence of declining PC sales. I used to think the market was a combination of FA and TA but...