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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: James F. Hopkins who wrote (14042)	5/15/1999 1:51:00 PM
From: Ramsey Su	Read Replies (1) \| Respond to of 99985

James, very interesting post. If my calculations are correct, the Hopkins NDX 9 features the following: 1. 15,541 million shares outstanding. 2. Total market cap, based on Friday's closed of $1,143 billion. 3. A $1 drop per issue = $15.541 billion "vanished". 4. A 10% drop = $114.34 billion "vanished". 5. A 20% drop = $228.68 billion "vanished". What is not known is what % of these shares are held by long term investors. Even though we know the trading volume and assuming your 148% turnover is correct, we don't know whether it is a few % of traders creating all the volume but definitely not every share turning over 148%. My point being that even though actual money is realized by the traders, the paper wealth affects millions of households who would feel $229 billion "poorer" if just these 9 stocks take a 20% correction. I believe that $200 billion is the average amount of mutual fund inflow the last couple of years. Our economy has at least been partially driven by the positive wealth effect for the last few years. As someone earlier referenced Paul Volker, our stock market supports our economy and may be supporting global economy right now. The reverse may be the BK. Next Monday is going to start off with HWP earnings. Lewis Platt has made some very positive remarks when CPQ was laying off their CEO so I assume HWP will not disappoint. Tuesday is Dell and AMAT. The biggie, of course, is the FOMC meeting. In the event that all of the above are negative, it would be a fun ride on the BK. We have only Monday to place the bets. What should it be? Ramsey

To: James F. Hopkins who wrote (14042)	5/15/1999 2:10:00 PM
From: KM	Read Replies (1) \| Respond to of 99985

Interesting piece from Barrons comparing this year to the market in 1874: May 17, 1999 Setting A Bull Trap Does what happened in 1874 foretell what might occur in 1999? By Christopher Carolan The great stock-market rally of late 1998-early 1999, coming so quickly on the heels of last year's international financial distress, has no precedent in the recent past. Combined with new highs in many averages, this argues that the bull market is back, and bigger and better than ever. Unfortunately, there is a historical precedent for this rally, and its final act wasn't pretty. Others have noted the parallels between the declines of 1873 and 1998. Both were preceded by bull markets marked by speculation in a new transportation infrastructure -- the railroads then and the Information Superhighway now. Each drop occurred in a climate of falling commodity prices. And in 1873 as well as in 1998, the financial distress was international in scope. In May 1873, German and Austrian markets collapsed; a few months later, the U.S. stock market swooned. In 1998, the woes of Asia and Russia pushed down American share prices in the summer and early fall. The rallies that followed each slump were impressive, but they developed under very different circumstances. In 1998, the Federal Reserve Board headed off any crash -- and refortified the bulls -- by easing interest rates. In 1873, there was no Fed to stem the panic. The pivotal September event was the bankruptcy of speculator Jay Cooke, who couldn't sell enough of his Northern Pacific railroad bonds in Europe to stay afloat. Last year, in contrast, the Long-Term Capital Management hedge fund was rescued in September, even though it had made some very bad bets on bonds, among other things. The 1873 decline ended November 7, with prices off about 30%. Then came a tremendous rally, similar to the one that followed the 1998 low reached last October. According to contemporary accounts in the New York Times, stocks gained 10%-12% in the first nine days of that rally. Though there was no Fed to cut interest rates, New York banks -- at the time easily the most dominant in the nation -- played much the same role. As the Times noted on November 26, 1873: " ...The main stimulant to the share speculation at the exchange is the ease in money and the restored facility of clearing the immense speculative transactions between the brokers through the banks." Table: History Lesson One month later and with the rally well under way, the Times described a market that had forgotten about value just weeks after the greatest crash in NYSE history: "Stock Exchange speculation is rampant... . We seldom expect to report what would be called a consistent market on Wall Street, but there is now less appearance of this element, and a greater disregard of relative values and the outside surroundings of the Exchange than in usual seasons of excitement. But many of the banks (some of them nearly at death's door in October, and owing the clearinghouse half their capital or more) are being drawn into the ante -- panic practices and are ... fast forgetting the lessons of September. They all seem willing to help "roll the ball" and to certify that [money] prices are cheap... ." The table shows how far some stocks slid in the 1873 crash and the extent of the subsequent rally. By the time the bull stopped running in early February 1874, the bluest chips, the New York Central and Union Pacific railroads, had exceeded their old highs, as many top names have done in this rally. Most secondary issues had regained about 70% of their losses by early 1874, compared with the Russell 2000's 80% recovery now. And then, as today, the market shot up as fast as it had plummeted. The news accounts during the post-crash rally focused on the greenback question. Would Congress increase the amount of greenbacks in circulation and ease the developing contraction? (The term "greenback" appears in the financial press of the day as frequently as "Greenspan" does today.) At the time of the high, the bulls hoped for monetary relief. By March 1874, market participants realized that help from Congress wouldn't be soon forthcoming. Stocks no longer could escape the gravitational pull of the contracting world economy. The market rolled over to lose about 43% in the next 40 months, in what became known as the depression of the 1870s. In essence, the bulls had blundered into a trap that would see stock prices trend downward for several years (see chart). Of course, there are substantial differences between then and now. The New York banks were no match for the world economy then, while the Fed is a more formidable force now. America's central bank has more tools to "roll the ball," to use that elegant phrase from the 19th century. Jay Cooke's failure caused major harm to the financial markets in 1873, while the LTCM bailout averted similar systemic damage in 1998. The 1873-74 rally occurred after a much more devastating collapse than 1998's crashless decline. Nonetheless, the message is clear: Wall Street's ability to quickly reflate itself with easy money is no guarantee that the bear is defeated. History suggests the determining factor is whether the world economy truly has recovered from the previous year's shocks. In 1874, it hadn't. In 1999, as the continuing woes of Japan and some other nations in Asia and South America show, the verdict still isn't in.

To: James F. Hopkins who wrote (14042)	5/15/1999 2:21:00 PM
From: KM	Read Replies (1) \| Respond to of 99985

One more clip of interest from "The Trader" column in Barrons this weekend: * * * * * * * * The relative lack of panic on display jibes with the overall tone of investor behavior lately. What bulls would deem justified confidence strikes the bears as tantamount to whistling past the graveyard: that is, the blithe disregard for higher interest rates and cloud-skimming stock valuations. For two weeks until Friday, the indexes thumbed their noses at ever-rising rates and marched higher. A.C. Moore, a strategist at advisory firm Dunvegan Associates, has corralled numerous indicators lately to get a feel for "the internal spirit of the market" and judges investors right now to be harboring a dangerously low level of anxiety, according to a proprietary "complacency" measure. One somewhat arcane piece of data that tends to shed light on the public mood is the amount of stock that NYSE specialists -- the buyers and sellers of last resort on the exchange floor -- have sold short. The recent numbers show an unusually high short reading, highest in about a year, which tends to indicate that there haven't been enough public sellers to accommodate all the rabid buying interest recently, a gap which is made up by specialists going short to fulfill demand. This tends to occur just before public buying demand peaks. "Specialists haven't been believers in this move [higher]," says Moore. And their activity has proven a useful turning-point signal in the past. After all, he adds, "Those guys all have lovely homes on Long Island," and they didn't pay for them by consistently losing money to the public investor. * * * * * * * Maybe the general public isn't worried but I sure am. However, the prospect of a defined trend emerging, even if it's down, is sort of exciting. Imagine the opportunities on the short side.