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verfasst von BossCube, 31.10.2000, 13:40

Weekly Commentary
October 30, 2000

Guest Commentary - Leo Hood

Market call: As the parade of bulls shows up on TV to say why this is a bottom and another incredible buying opportunity, we see much more downside. Breadth was horrible on both New York and Nasdaq. Downside volume was overwhelmingly bearish - but quite orderly. There is still no panic. The options players have taken another sudden turn to bearishness with rapidly rising put purchases, which as you know we feel is bearish since it is the early stages of sentiment reversal. After a bear market and a long period of depressed prices we might find prolonged and persistent put buying to be bullish, but after several years of record call buying, the put activity now seems to this writer as quite bearish.

One of the characteristics we expect to see in a bear market appears to be in place right now. That is, the market can only unwind deep oversold technical conditions to neutral before heading back towards oversold. The reason for this is a psychological change at the margin. It just may be that the sheeple who have blindly bleated at every word of wisdom passed on by the Bull Channel's cadre of experts have discovered (with great pain) that the experts don't always have the story right, that stocks can also go down, and when they do go down it costs real money.

For those who held a hot stock and watched it lose 50%, the pain was real. For those who bought more on the dip only to watch the stock get cut in half again, the pain was intensified. For those who used margin, the pain was doubled. And the truth of the matter is, those on margin have yet to be taught the larger lesson - you can get totally wiped out. That lesson may be just around the corner now, the forced selling episode which removes all emotion from the decision making process and stocks get sold at any price just to pay off the debt.

Can you believe the Bull Channel still serves up the"company specific" line when each successive earnings warning comes out? This is college football season, and I've been a season ticket holder at the University of Florida for a quarter of a century, so allow me the license to illustrate this"company specific" horse manure in pigskin terms.

The left guard is injured, the tight end has the flu, the quarterback broke his wrist, the fullback sprained his ankle and the wide receiver pulled a hamstring. These are all player-specific injuries, but the offense shouldn't be affected, right? The defensive end was suspended for missing class, the middle linebacker just had surgery on his knee, the cornerback has an Achilles tendon problem and the free safety broke his leg in a freak accident at practice. But these are player specific injuries, surely it won't affect the overall play of the defense, eh? Oh, by the way, the place kicker has turf toe and the back-up quarterback suffered a separated shoulder during mop-up duty in last week's game. Not a problem, right?

These are all player specific injuries. The team is still just fine.

Any college football fan knows that the loss of one or two key players on any given week can turn an outstanding team into a mediocre team. The loss of several key players can turn a dominant team into a doormat. Oh sure, there are those rare times when a heroic effort by the second and third stringers pulls out a victory for the home team, but for the most part, when the stars go down, the team is in trouble. Company specific indeed.

The list of tech stocks in trouble because of slowing sales growth, weaker profits, cloudy forward outlooks, rising inventories, softening prices, diminishing demand, strong dollar-weak euro competitive disadvantages and any number of other"company specific" problems is becoming such a long list that in football terms, the market is down to its third string quarterback, walk-on offensive linemen and the waterboy. But the cheerleaders show up at the game expecting victory anyway, as cheerleaders are supposed to do.

That's where we are. The message of the market is that this juggernaut is about to be blindsided. When there are two or three companies with problems, perhaps it really is company specific. When the list grows into the dozens, one must wonder if larger forces are at work. By the time hundreds of former leadership stocks are on the injury list, it's time to call a spade a spade.

This economy is turning down, we are headed for a recession at best, and quite likely a depression thanks to the incredible debt bubble engineered by one Alan Greenspan. Yet as a nation, we're still playing make-believe.

Government revenues have been running at record rates of income while social support payments have been restrained, allowing just enough lying with real numbers to pretend we have a huge surplus. We don't. And whoever does get elected in November will face a period of declining revenue and fast rising social support payments at best, and very possibly much more serious fiscal problems as the outflow from the financial markets panic and potential collapse wreaks havoc on the entire planetary financial system.

In case you haven't noticed, the state of the world is not exactly hunky dory right now. Asian financial markets are in turmoil again and could be on the verge of another meltdown. The euro is setting new lows by the day and the economies of the member nations aren't exactly bubbling. The middle east is any given day from going up in flames and Russia is a the depths of a major depression with no possibility of recovery anytime soon. Bullish? No.

Meanwhile, we continue to borrow our prosperity thanks to the willingness of foreigners to subsidize America's consumption binge and money appears to be plentiful thanks to the multiplying effects of leverage and derivatives that find their way into every nook and cranny of economic life, from the packaging of mortgages to the securitization of credit card receivables - we just keep shuffling the paper without ever paying anything off. Two things indicate that this bizarre circumstance may be nearing an end.

First, the Bundesbank proclamation that US economic data is bogus (I still can hardly believe that event got such scant attention) and second, the exodus of foreign money may now be underway, with a little over $25 billion in fed custody holdings heading back overseas in the past six weeks. That's more than a trickle, but less than a flood. The amazing thing is that this sudden retreat has taken place with the dollar soaring. (Not all of our benefactors are true believers anymore.) Commercial S&P Futures traders established their largest short position in all of history by late spring 2000. Five months later, they are even MORE short. The smart money has spoken, this is a market to be short, not long.

New lows lie ahead. How low, we don't know.

For a two week free trial to this daily newsletter service, E-mail request to Leohood@aol.com.


Also Puts halten.

Gruß

Jan

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• Beitrag von Richebächers Seite: - BossCube, 31.10.2000, 13:40