Prechter speaks

verfasst von JÜKÜ, 04.07.2002, 18:44

<h1 class="body" align="left"><font color="#808080"><font face="Arial"><span style="FONT-SIZE: 12pt">Chasing
the Next Pocket of"Safety"</span></font></font></h1>
<p class="body"><font size="3">What does the term"chasing performance"
really mean?</font>


<p class="body"><font size="3">When investors yank money from an underperforming
stock fund and put it into another stock fund or sector whose better performance
has been advertised or hailed by the media, that's chasing performance.</font>


<p class="body"><font size="3">This is classic"herd" behavior. The
herd always catches on at or near market tops, just before the trend reverses.
If you're moving along the same trail, you'll be in mid-air before you realize
you've followed them right off a cliff.</font>


<p class="body"><font size="3">Small-cap stock funds this year are a prime
example.</font>


<p class="body"><font size="3">In early spring the Russell 2000, S&P Small
Cap 600, and other small-cap indexes were virtually alone among the stock market
averages in attaining new all-time highs, and their prominence increased
dramatically:</font>


<p class="body"><font size="3">The Russell 2000 joined the Dow, S&P, and
NASDAQ as featured items on CNBC's real-time ticker, and Investor's Business
Daily replaced the Dow with the S&P Small Cap index at the top of its
General Markets & Sectors page because"they have outperformed since
March 2000." True to form, investors began pouring into small caps. It
happened so rapidly that several of the best-known small cap stock funds
literally closed themselves to any more new money.</font>


<p class="body"><font size="3">What did the Elliott wave patterns say about
the small caps at that time?</font>


<p class="body"><font size="3">I'll let the April issue of EWFF (published April
5) speak for itself:</font>


<p class="body" style="MARGIN: 0in 27pt 0pt 0.25in"><font size="3">"The
only major group that is anywhere near record levels is the small cap sector,
which pushed to slight all-time highs in March. The Value Line/S&P
ratio...has produced a clear five-wave rally from [the April] 1999 low. This
pattern suggests that, relative to large caps, the secondaries should start to
underperform. Sentiment also suggests a reversal as the small caps' two-year
outperformance has suddenly been discovered.</font>


<p class="body" style="MARGIN: 0in 27pt 0pt 0.25in"><font size="3"> </font>


<p class="body" style="MARGIN: 0in 27pt 0pt 0.25in"><font size="3">A reversal
appears nigh, which will remove one last pocket of"safety."</font>


<p class="body"><font size="3">So was this forecast correct? How have those
indexes performed since then?</font>


<p class="body"><font size="3">The Russell 2000, S&P Small Cap 600 index and
the Value Line Index have all declined in clear Elliott patterns.</font>


<p class="body"><font size="3">Why do so many people keep making the same
mistake?</font>


<p class="body"><font size="3">Because human nature doesn't change. I'm sure
you've seen mutual fund advertisements touting a good track record, with small
print at the bottom that says,"Past performance is no indicator of future
results." Yet, to assume that past results WILL continue in the future is
obviously what most investors do.</font>


<p class="body"><font size="3">Understanding price patterns is the best and most
objective way not to make this mistake. You can know when to get in front of the
herd, and when to separate yourself from it. You'll discover specific
opportunities that not one person in a thousand sees until it's too late. </font>


<p class="body"><font size="3">More important -- by anticipating changes BEFORE
the herd does, you can limit your risk potential AND minimize losses.</font>



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• Prechter speaks - JÃœKÃœ, 04.07.2002, 18:44