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Hello everybody:
I've been on hiatus from the US for the past month, and missed most of the
fun you've been having.
I come back to The Land Of Opporunity to find CNBC flashing bad Fridays, bad
Januaries, bad close below 10k, bad yield curve all in the same breath.
Allright, I admit it:
I don't know what to make of the "MARKET RULES" at all:
Utility stocks go up as bonds go down.
Banks fall as bonds rally.
Walmart falls off a cliff due to a supposedly tightening Fed, but Costco and
The Gap each tack on a 10% gain. Even Cramer gets that time-tested equation
wrong for the day.
Dow does its 20% = correction thing, NDX goes to new highs.
America watches foreign stock indices rally even as the Dow falls, and fear
asset reallocation; but the foreigners watch the NDX and take off because of
it.
In Hong Kong, the Police are brought in by HSBC to control the application
frenzy for a dot com IPO that has no business plan, no customers, and no
finances but is being floated by a "savvy business tycoon". Reminds me of a
similar company floated in the South Sea Bubble - no disrespect to the
"savvy business tycoon" - no wonder to me that he is a tycoon and will
remain so.
Meantime - Unilever, the world's largest consumer goods company lays off
25,000 people citing profit-expectations pressure from The Street, and
elevates the Indian subsidiary's CEO to their global Board coz that
subsidiary keeps tacking on growth after growth... in the face of price
competition, regulatory competition, P&G competition, Colgate competition...
and while the Indian subsidiary does have the largest market cap in the
Indian stock market, its parent flounders as its market value equals that of
Gillette, a company one-fifth its size - or looked at it from US
investor-looking-out, its market value is one-fourth that of P&G, a company
20% smaller than Unilever and growing half as fast as Unilever in the same
businesses worldwide.
The yield curve inversion gains traction signalling a slower economy ahead,
but the stable cyclicals, drugs and consumer stocks (which are supposed to
rally when an economy threatens to slow) fall huge anyway.
Janus, the God of Growth, gets into Value. Their prospectus says "those
stocks that the market is wrongly abandoning". Huh? Wonder what happened to
"the market is always right"... and I wonder if the use of the term
"Strategic Value" in its title is a licence to underperform for extended
periods of time.
So now that everyone expects mean reversion in the form of NDX falling down
and others going up - or some combo thereof whereby this divergence is
resolved into harmony, I ask myself: Just what are we looking at?
Folks, it turns out that the NDX has had ONE 20% correction since the last
acknowledged "recession" in 1990.
A rally-decline chronologue is attached for your weekend reading pleasure.
Data starts from 1/2/90, and choice of that date is purely economics
fundamentals based = subjective.
And maybe I'm looking at wrong data, but the COMPX, the larger universe
Nasdaq index cousin, hasn't even had that 20% correction since the 1990
recession.
I dig a bit deeper into the "narrow technology market with its pathetic
advance decline line", and find this gem contributed by Lazslo Birinyi:
"48% of the stocks in the Nasdaq market gained an average 330% in value for
1999.
Of this,
- Half (24% of total market value, represented by 474 stocks) gained an
average of 504% with a median gain of 383%.
- Half (24% of total market value) gained an average of 155% with a median
gain of 151%."
Ah well. That was 1999.
Even today, the smallest of the top 100 of Nasdaq's % gainers for the past
running 12 months has a market value over $150 million, and Rank # 100 has a
gain of 840% for this 12 month period ended Friday 2/25/00.
I use rolling 12 months in that statistic since IBD uses rolling 12 months
in its famous RS calcs.
By comparison, Rank #100 in the SPX gained 21% in the same period. SPX Rank
#1 gained 1363%, no prizes if the word Qualcomm comes to mind.
Qualcomm is Rank # 41 on the Nasdaq ranking of % gainers.
The numbers, thus, are hardly what I would call a "narrow market". and I
imagine this once, non-index funds did much more for their investors than
index funds by a wider margin of participation - regardless of what the
folks at Vanguard would have me believe re the perils of not indexing. In
mony management, clients take away your money if they see someone else doing
better. Even for a year.
So even if we're looking at the well stated bear case re 20% corrections,
revisiting 1998 lows, not-yet-a-panic-bottom, mean reversion, bad breadth,
et al - to my mind there remain atleast as many opportunities to make a
fortune being long in this market as there may be being short.
Words from an old Louis Armstrong song come to mind:
I think to myself
What a wonderful world...
I have no idea re the short term pulse of the trading market. Strategically,
it seems to me that abandoning technology now would be an error of
catastrophic proportions to the institutional - and thus - the individual
investor.
It still remains a game of buying the advancing stocks and selling the
declining stocks.
It still remains a case of a liquid individual investor waiting to buy the
dip, with 2x more money going into money market funds than equity funds - as
has been seen consistently since 1994.
It still remains a strategic US and Global bull market for equities, albeit
a confusing one if one is married to any particular philosophy of analysis.
It still remains one where the relative outperformance of overseas benchmark
indices may continue for 2000. I vividly remember Earl picking up on this
trend way back when Asia was still a bad 4 letter word.
Just as these "Membership To This Club Starts at +840%" are becoming bad 4
letter words.
I wish I could say that my portfolio went up 840% in the past 12 month
rolling period... and that simply says that the market gave me at least 100
opportunities to get in that I did not capture. That's like one opportunity
every 2 trading days.
Pathetic.Instead of adding value to my portfolio, I The Trader depreciated
it.
The above may not help you trade Monday morning. But this set of
observations comes from the perspective of someone who did the odd buy-this
sell-that trade and mostly stayed away from the markets for a whole month.
Gitanshu
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