i see many reasons for opportunity around the corner... this is the 3rd year of bush's presidential term. the sp500 hasn't declined in year 3 of the term since 1939. we're coming off 3 consecutive annual declining years. the last time we had 3 losing years in a row was 1939-1941, which was followed by 4 straight double-digit gains averaging 19% annually. we made a 5 year low in october, which i believe established a solid base. i think we are going to see an improvement in corporate profits and earnings quality. where else are you going to put your money, under your pillow?treasuries provide low yields, real estate is becoming quite expensive. i don't see a boom, or melt-up in the near future, but i do see a more positive outlook than the current conditions.
In essence I can see where that's justified and agree that it could happen, but I am viewing 2000-03 more like 1929-32, just because all those ducks line up don't make it a lock for 2003. I would have preferred to see the year start off poorly, but the fact that it didn't, leads me to believe that there is still high hopes for the markets this year, and that ain't what you want. I think too many people are getting caught up in the wrong parallel, go back 7-8 years in your analysis, FED cut rates 15 times in the early 30s, still 4 down years in a row. Because we had a stock bubble, just like the 90s (which was far bigger), takes time to work that off, in both price and behaviuor. Still don't see it happening. I mean a 265 point reaction to a decent ISM #, there's still lotsa hope! It'll be interesting to see what happens, in the meantime... Good trading David
lescor's post sure aint crap.................his views might not coincide with yours but that is'nt a bad thing either.
If the market were washed out, we'd be a lot lower than we are. But there's still a lot of hope out there (people "believing" that the bear won't last four years and "believing" that we've put in a bottom). That, coupled with the people who just don't think about their portfolios anymore, means a lot of apathetic and directionless movement. The market needn't go up or down. It can also go sideways, at least until E begins to catch up with P. And sideways can last for a good long while. --Db
Financial Post - Wednesday January 8, 2003 By George Bragues It's the time of year when market analysts offer up their annual forecasts based on logic and evidence. They should leave it up to the psychics 'Tis the season for stock market predictions. Were we living in ancient times, seers would be trying to divine the future of the Dow Jones by interpreting a dream, entering into a frenzied communication with the gods, or examining the entrails of chickens. Living in more enlightened times, however, we now require that forecasters justify their claims more scientifically with logic and appeals to evidence. Sad to say, this has done little to improve the quality of forecasts. To illustrate this, we need only dissect four of the more common rationales behind the plethora of 2003 market predictions. The improbability of a four-year losing streak. In by far the most popular line of reasoning this year, bullish prognosticators observe that the market has declined three years in a row. Because the market only had one four-year run of losses during the 20th century, between 1929 and 1932, the chances of it happening again in 2003 are deduced to be slim. Writing in The Wall Street Journal, Jeff D. Opdyke points out that anyone who went long after any one of the 20th century's three-year losing streaks (1901-1903, 1929-1931, 1939-1941) would have enjoyed positive returns two out of the three proceeding years. This is about as logical as the sports gambling tout who tells us to bet a certain football team because it is three for four on grass after playing on Monday nights. With only three instances of three-year losing streaks to consider, we really can't be sure whether the subsequent outcome indicates a genuine pattern or mere chance. A more significant error comes from ignoring the statistical fact that the stock market's performance in any given year is independent of what happened in earlier years. Do the math on year-ending levels of the S&P Index between 1801 and 2002 (tabulated at www.globalfindata.com), and you'll discover that the correlation between annual price changes and previous one-, three- and five-year returns is practically zero. Each new year, then, the stock market is comparable to a coin toss, with the only difference being that the coin is skewed slightly in favour of the upside. How much, we cannot be sure, though the proportion of positive years on the S&P over the last two centuries suggests the market should rise about 60% of the time. As such, the best forecast to make on Jan. 1 is always to be bullish, no matter what has recently transpired. The Pre-Presidential Election Year Indicator. Floyd Norris of The New York Times is among many reminding us that, "it has been more than six decades since the third year of a presidential election cycle brought lower share prices." Trouble is, in all but one instance during the last 60 years, Britain's stock market also rose in a pre-presidential election year, despite that country not having a regular four-year cycle. So, too, this indicator only impresses if the historical evidence adduced is restricted to the post-war era. Between 1946 and 2002, a simple regression analysis -- a mathematical technique helpful in disclosing the predictive value of a stipulated variable -- reveals that the occasion of a pre-presidential year could indeed explain a 12% increase in the S&P index and do so with statistical significance. But when the same calculations were run for the longer 1801-2002 period, the incidence of a pre-presidential year ceased to be statistically significant. P/E ratios. While the bulls monopolize the first two rationales, this one tends to be favoured by the bears, who insist that the market's P/E ratio, currently 30 on the S&P 500 index, continues to be well above the historical norm of approximately 15. Academic studies give a decidedly mixed picture of the P/E ratio's ability to predict the market. The appropriate P/E ratio, after all, must take into account a myriad of factors, including earnings growth, market volatility, dividends, bond yields and inflation -- for these impinge on how much an investor should be willing to pay for each dollar of corporate earnings. In itself, as demonstrated by Princeton University's Robert Shiller in Irrational Exuberance, P/E only seems to be prophetic when an inflation-adjusted figure for the S&P is used in the numerator and a 10-year moving average of earnings is inputted in the denominator. Even then, it's only useful in forecasting the next 10 years, not the upcoming one. Investor Sentiment. Long a favourite among contrarians, this indicator states that high levels of investor bullishness foreshadow declining stock prices, while pervasive bearishness augurs a rally. Accordingly, bulls appeal to the public's disillusionment with stocks, while bears espy a resurgence of investor excitement in the tech stock rally since October. In his book Beyond Greed and Fear, Santa Clara University professor Hersh Shefrin charts the percentage of bulls reported in the widely cited Investors Intelligence sentiment index against the subsequent year's market performance. No connection between the two comes to sight. Given the strong public demand for predictions, it would be too much to ask financial journalists and brokerage analysts to stop issuing annual forecasts. But they could conceivably fulfill the demand by emphasizing particular stocks, where academic research has uncovered several predictive factors, such as average volume turnover, earnings momentum, valuation ratios, sales growth rates, as well as the level of accruals and capital spending in relation to assets. Otherwise, leave the annual predictions about the general market to the psychics.
I'm basing my guess (just a guess) of what will happen purely on human nature and people's emotions. As any real trader knows, that's what gives us the movement in the markets. When things get bad, people at first are caught off guard and shocked. Then they get angry, feeling that they've been duped by a system that said you will always come out a winner if you buy stocks. Then they seek revenge by averaging down and figuring they'll prove themselves right by sticking to the great 'dollar cost averaging' miracle plan. When things get worse still, then they become embarrassed. They figure no one would be as stupid as them to hold losers all the way to the bottom and they don't want to admit that they were wrong. When things get worse still, THEN they finally throw in the towel and swear off equities forever. Most of my friends are in the embarrassment stage. They don't want to look at their statements or discuss things with their brokers, but they are still largely invested in the stock market. If most of your friends are in cash or bonds, then you have smarter than average friends. Compared to the previous twenty years, yes people are apathetic and stocks are no longer the cool thing to talk about. But you've got to keep in mind the enormity of the bubble and the unadulterated euphoria it created, like nothing seen in our lifetimes. That was not a typical bull market that we saw end, and I maintain that this is not going to be a typical bear market. People didn't care that valuations were unrealistic at the top, they won't care about companies trading at obvious undervaluations at the bottom. I still say, to the extent that the public loved the market at the top, they have to shun it at the bottom, and we're not even close to the mirror image of what we saw at the top. As to hope being washed out of the system, what do you call the volume surges and big gaps created by analyst buy recommendations? These still happen daily. Just the fact that people are still hanging on the words of these people is evidence enough. I'm not saying short the market now. The market always does whatever is necessary to disappoint the greatest number of people. Fading this rally right here might just be too easy. But I am telling all my friends that ask my opinion about the market that right now there is limited upside with a lot of risk still in place. At best, the average investor will have to be smart and nimble to catch short trends within a sideways market. And yes, I do think that when it comes to the stock market, I'm smarter than the average investing public. I've been trading stocks off and on for 9 years, full time for one.
Not all that different from the initial stages of grief: denial, anger, guilt, depression. The stages of loss are essentially the same, whether they relate to death, unemployment, theft, etc. People feel guilty for having been so stupid, depressed for having lost so much. Eventually they just stop thinking about it so that they don't have to feel so bad. Re-addressing the market means having to go back and address past mistakes, and that's not something to look forward to. Traders, of course, couldn't care less what the market does. Up or down, it's all the same to them. Trading, however, is not an option for the rank and file. --Db
"I am a fan of Todd Harrison at minyanville.com and he's pretty much espousing the same views." Todd is the man I follow him since the street.com days A 1/3 of my account is piggy back with his trades with stops and that just add a little more profits to my account. He is just so good at what he does. Good trading, le
In my quest to figure out just where the heck this market is going next, I continue to be amazed by the so-called pros (ie:money managers, fed govs, government officials, talking heads) regarding their proclamations regarding how the economy is getting better. Just tell that to the 25000 to 37000 employees of K-Mart who are losing their jobs. I'll admit that K-Mart is broken and may be a poor example of an economic barometer but I would think that if things were getting better, K-Mart would not be looking at closing 325 stores. With layoffs continuing across the country, consumers who are still employed will soon get nervous about spending. I think we already saw this in December. In turn, business will not have a motivation to expand as there is plenty of capacity in place. Another thing that drives me crazy is the so-called experts talking about how technology will lead us out of this"soft spot". No way!!! Before tech can lead anywhere, bricks-and-mortar companies will have to see business improve to the point that they have to upgrade their existing, well functioning technology infrastructure to remain competitive. Otherwise, they will stretch their Y2K upgrades for a few more years. I just do not see any drivers on the horizon that will compel this market to go much higher. I am a naturally born optimist but the time has come in this market for optimism to be tempered with common sense.