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Strategies & Market Trends : The Art of Investing -- Ignore unavailable to you. Want to Upgrade?

To: VincentTH who wrote (546)	3/10/1999 6:38:00 PM
From: Sun Tzu	Read Replies (2) \| Respond to of 10633

When Mr. Bear (that's bear with capital B) arrives, it will be because everyone who wanted to buy the big caps has already done so and has no more money left to buy more of them. The stocks will fall under theirown weight and you'll hear people everywhere say "I can't believe such fine companies are falling for nothing. I wish I had more money to load up on them at these prices. This is a steal!" Of course the stocks are falling precisely because the speaker along with all others like him, have maxed out. And since cash reserves are at such low levels, there will be no one to save the day. At some point in time the bond market will come to the rescue. Remember, bond market is dominated by conservative players. So it will take quite a bitting for them to step up to the plate. Then the stocks will stabilize and sharply shoot up. But before they make their old highs, many who got burned last time and are just begining to break even, as well as most of the white knights from the bond market will leave the party. And the pattern will continue with lower highs and lower lows. This roller coaster to the bottom will continue until nobody dares to touch the equities (not to mention most people will not have money to buy equities anyway). This "calm" period will be characterized by lack of any action in both volume and price. This is what many technicians call building a base (or in this case I suspect building a long base). Meanwhile life goes on (albit miserably); companies will continue to innovate and add value to their equity (those that survive that is). At some point in time they will be cheap by historical standards (to put this in perspective, the stock market is overvalued by 30%~65% by all fundamental measures today, so the bottom will be both deep and wide). Some daring (or forgetful) people will decide to dabble into stocks again. Only this time E-Bay will not be going up $40 a day just for being ebay. This time around stocks will up due to their intrinsic values. This is why until Mr. Bear visits us, the strong will get stronger and the weak will flounder; there is so much momentum in the system, that it takes a historical event to change the market direction. At least this is my theory. A look at U.S. markets between 1950~1980 or Japan between 1960~1990 or Gold 1975~1985 should prove illuminating. If you do choose to look at those charts, don't just look at the price and volume action; print them on a monthly scale and "walk" through them slowly. Try to remember all the news headlines and the reasons behind the madness. It was not as if people woke up one day and said "I think I'll pay $800 an ounce for gold today". There was a logical reason for it all. regards, Sun Tzu