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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: OldAIMGuy who wrote (6047)	10/29/1998 7:43:00 AM
From: Jim Battaglia	Read Replies (2) \| Respond to of 18928

Tom, I would hope we are on a continued march upward, but here is a recent cautious article by Kaplan who is a gold buff: "THE ELECTIONS ARE APPROACHING on Tuesday, November 3 in the U.S. After that, there is no political motivation to prop up the financial markets, so expect the steepest slide in stocks to occur between November 4 and mid to late December. A stock market low in late September is usually reflected in a sympathetic low shortly before Christmas. If the recent stock market low was truly a bear market bottom, then we have set a number of new all-time records: 1) all-time high P/E at a market bottom; 2) all-time low dividend yield (in fact, the dividend yield at the recent bottom was lower than at any previous top!); 3) all-time low percentage of equity fund redemptions (401K plans reported a total withdrawal of less than one half of one percent of all assets at the nadir); 4) all-time lack of concern among mutual fund investors at a bottom; 5) all-time high price-to-book ratio at a market bottom. And many more. If the recent interest rate cut by the Fed has truly staved off a recession, as some have declared in the face of the recent stock market rebound, then how come the interest rate spread of corporates over Treasuries has not narrowed? Surely it is more likely that we are heading for a recession, and that the recent bounce in equities is typical bear market behavior, in which investors are lured into getting back just before each down leg. It is often forgotten that the financial markets act in the way which harms the greatest number of people. Looking at Fibonacci retracements for U.S. equities, the Dow peaked at 9412.64 on July 17 and bottomed at 7379.70 on September 1. A 61.8% recovery would see the Dow at 8636; on Tuesday, October 20, 1998, the Dow's intraday high was 8713.62. Meanwhile, the S&P 500 peaked at 1190.58 on July 20 and bottomed at 923.32 on October 8, so a 61.8% recovery would see the SPX at 1088.5. On Tuesday, October 27, 1998, the S&P500 touched an intraday high of 1087.08, almost exactly equal to the predicted value. Regardless of the real or imagined state of the U.S. economy, the P/E ratio on the S&P 500 is still a wildly overvalued 27.41 (as of Wednesday's close). THOSE WHO ARE STILL HOLDING U.S. EQUITIES are being given a fantastic opportunity to sell at prices not far below those of the spring and summer, especially if you are holding those "nifty fifty" shares which are actually showing gains for calendar year 1998. The world's financial problems were not magically solved with the recent Fed interest rate cuts; if they had been, the spread between corporate bonds and U.S. Treasuries would have returned to pre-"correction" levels, and they are still abnormally wide, indicating that a recession is approaching. Panic before everyone else does. The volatility index VIX hit an intraday bottom of 28.58 on Tuesday, October 27, 1998, its lowest point since August 25, 1998. Investors are going long equities and selling volatility (i.e., betting on stable long-term gains) in the stock market precisely when they should be selling short and buying volatility. It is as if the events of the late summer never happened. It is "Indian summer" in the financial markets, but winter is inevitably approaching." I guess we will just have to wait and see!!! Jim