BBS: ExecNet Information Systems - New York 914 667-4567 Date: 12-30-93 (17:56) Number: 37798 To: ALL Refer#: NONE From: LARRY@BORIS.WEBO.DG.COM Read: NO Subj: Re: We are looking at a B Status: PUBLIC MSG Conf: Misc.Invest (1291) Direction: FORWARD Ido> I think we are looking at the end of the bull market, and a Ido> bear market starting in the first quarter of 1994. The vast You may be, but most bear markets precede recessions, and justifying a recession anytime before 1997 is pretty difficult. Ido> majority of the indicators say so. Since I'm new to the stock Ido> market, I'd appreciate any feedback on the following Ido> analysis. There are some indicators that say so. Garzarelli's (spelling?) indicators are majorly bullish, although slightly less so than yours. If you are new to the market, then stay out of market timing. It is the real fool's game. Even the experts fail. Best statistic I have heard is that you have to be right 70% of the time to do better than buy and hold. That is a tall order, even for the experts. Ido> Market Analysis Dec-26 1993, based on Investor's Business Ido> Daily data. Ido> # Indicator Value Ido> ================================================================ Ido> 1 Advance-Decline line Decline since Oct Ido> Notes: A-D is down since late October with small, Ido> unsuccessful rallies in Nov, probably due to holiday Ido> season. It has diverged from market averages. This is a Ido> typical pattern to an end of a bull market. A-D line has Ido> an impressive record of forecasting major market tops. Tha A-D has been perking up quite nicely recently. Yesterday was just an example of strengthening sentiment going into the new year. Ido> 2 IBD600 Acc/Distribution B- Ido> Notes: Reinforces A-D line showing Unsure how well this indicator has been over the long haul. But it ain't reinforcing much. A-D line is strengthening. Ido> 3 Crossing of moving average IBD6000 maintaining Ido> level above its 200DMA Ido> Notes: It's holding so far, but recently flattened Ido> slightly. Market is distributing as it is advancing. Ido> Normal in mature markets. Doesn't necessarily indicate a bear market or a major correction or market top. Could just mean that the market is reaching its full fair valuation and will move now with the economy. Many of these indicators were used for determining that we were supposed to start a decline in October of 1992. Whoops. Paying attention to that market timing tripe would have deprived me of a 30% return in 1993. Ido> 4 Mutual Funds Cash Positions 8.8% Ido> But that 8.8% is a phenomenal amount and more is pouring in. The rate of cash entering the market via mutual funds makes this number probably low, because funds cannot keep up. Ido> Notes: has been declining since Apr. >12% Bullish; Ido> <9% Bearish Bearish outlook. The IBD just printed an article two weeks ago saying the Bullish/Bearish sentiment was the most bearish it has been since 1990. Me thinks you had better recheck this indicator. Ido> 5 Fedseral Reserve Board Discount rate 3.5% Now this is silly. It has spiked periodically, but it is 3% and the Fed hasn't even voted in favor of a bias to raise rates yet. Ido> Notes: Low, but rumors of imminent tightning. Rumors abounded in 1992 as well. More than likely there will be some short end tightening at some point. But when? The new tax bill will kick in now and the credit used to boost this quarter will dry up a bit. This may just put a cap on inflation and until inflation is up, the Fed will probably not act. Further, the market starts to drop after the hike not in anticipation of it. You will have time to change your investment strategy on the market after the Fed finally decides to raise rates. The rates are so low that initially raising them may actually have a positive effect on the long rate, flattening the curve. Some actually feel that a small hike in short term rates could be good for business and the market. If the rates hit 4%, then it is time to worry about the Fed. Without a 1% move up, I think there is little likelihood that the fear will do anything more than make the banks a temporary bargain. Ido> 6 % Invest. Advisors Bearish: 37 (35%-Bulish; 55% Bearish) Ido> % Invest. Advisors Bullish: 40.4% (50%-Bullish, 20% Bearish) Ido> Ido> Notes: If market trend is positive and there is a large Ido> bearish reading, its time to buy. When bulls climb to more Ido> than 54% and bears dip below 20%, expect a drop in the Ido> market. Right now this shows closer to bullish trend. This makes little sense. The 37 is very close to the bullish statement, but it says that when 55% of advisors are bearish (a high reading) then that is bearish, when what I have heard is exactly the oppositte. The IBD just printed an article not two weeks ago saying that their reading was the most bearish it has been since 1990, so either they are misinterpreting their own numbers or you are. Ido> 7 Bull market age <3 years old Age is a good indicator. As is a real fed move. However, this recovery has been so slow and interest rates so low that things are just moving more slowly. The cyclicals are a good example. The auto stocks have done phenomenally well the past two years, but the cycle typically lasts 5 years or more. Deep cyclicals like the steels are just starting to emerge with profits. This is later in the recovery than usual because of the slow growth and international recessions. In such a slow recovery, the market appears to move slowly (big surprise, I could have a heart attack and die from that surprise). E is coming up to P, which is normal during a recovery. P/Es are typically highest during a recession, but people cry about high P/Es now at around 20. That is statistically high, but we came down to 20, not up to it. As profits grow into this recovery that number will come to make more sense. When all the companies, the steels, the papers, etc. are making money and their stocks are hitting highs, then you may be looking at the end of the cycle. Ido> Notes: >>avg. Likely to top soon. Ido> 8 Divergence in market indexes None Cool. So they are all moving up confirming the market move. The favorite quote of most timers that I have read is "The Trend is your friend". Well, the trend is up, and it will remain up until it changes. Ido> Notes: All averages maintain level higher than their Ido> 200DMA. Market top may not be imminent, but see 1,2,3. Imminent. Sounds so threatening doesn't it. Ido> 9 Odd Lot Short Sales: 1.52% Ido> Notes: Contrarian: The higher the ratio, the more Ido> bullish the market. Currently it's relatively low, but Ido> higher than 0.5. Does not give a definite trend. Ido> 10 Short Interest Ratio 4.70 Notes: <2.5% Bullish; Ido> <1.5% Bearish. Clearly bullish Bullish? You mean there are bullish indicators? Ido> 11 Specialist Short Sales: 0.87 Ido> Notes: (>0.6 Bullish; <0.35 Bearish) Psychological: Not Ido> infallable. Slightly bullish. And we have an infallible indicator? Please tell us what it is. The entire world is waiting. Ido> 12 Mutual Fund Share Purchase/Redemptions (excluding Ido> Money Market Funds) 2.24 Ido> Notes: Value is midway for past 12 month but closer Ido> to 5 year high. Neutral Ido> 13 AMEX Daily trading Volume as % of NYSE Daily Volume: Ido> 7.33% Ido> Notes: Halfway between 12mo and 5 year hi-lo. Ido> Neutral Ido> 14 OTC Daily trading Volume Ido> as % of NYSE Daily Volume: 108% Ido> Ido> Notes: Above 100, indicating a market top, but not Ido> as effective since in recent years big league is Ido> staying in NASDAQ (Microsoft, for example) Ido> 15 Number of Stock Splits Ido> in IBD6000 106 Ido> Ido> Notes: Near a 12mo high (111) and 5 year high (127) Ido> Indicates entire market may be topping. When were the highs last hit? Did they portend a market top. Nope. Ido> 16 New Issues in Last Year as % of All Stocks on NYSE: Ido> 32.4% Ido> Notes: At a 5 year high! Clearly indicates a market Ido> top Yes, new issues are steaming to market. This is an indicator that does concern me. Ido> 17 Price-to-Book Value of DJIA 3.57 Ido> Notes: Very close to a 5 year high (3.58). Market Ido> is clearly overvalued. Again, when was the last high hit? Did it portend a market top? Ido> 18 P/E Ratio of DJIA 21.6 Ido> Notes: Near a 12 mo low (20.4) but in between a 5 year Ido> range (10.1-40.6) not conclusive but slightly bullish E comes to P. Hmmm. Sounds like a broken record doesn't it? Ido> 19 Current Dividend Yield of DJIA 2.67% Ido> Notes: Very close to a 5 year low of 2.66%! Just like Ido> a month before black Monday! Gee, we have an indicator that is consistent with Black Monday. Well, interest rates, if you will recall, on Black Monday were running at 10.5% on the short rate. I had friends begging to get 13% mortgages. The ratio of current rates to the market rate are much more accurate an indicator. As a note to the less informed, a drop like that in 1987 occurred only once in our history prior to Black Monday. It was nearly sixty years prior. Comparing today to Black Monday is ludicrous from statistical and historical precedent. However, it is reasonable based on many indicators to assume that a 10-20% decline could occur sometime in the next two years. Of course, this is what everyone is thinking and is exactly what has kept the lid on the market, unlike the 40% 9 month rise of the market in 1987. As one analyst recently said on CNBC, and he was a bit bearish: If a correction comes, it will be the most anticipated correction in the history of the market. I remember 1987 quite well. By summer, everyone was throwing everything they oned including their underwear at the market. They were buying stocks mostly, not funds, but funds were popular too. Everyone was bubbling about their stocks and caution was thrown to the wind. Today, everyone I hear or talk to is cautious. There is alot of money going to mutual funds, and their is concern about this. However, the MFs have traditionally been a much smaller player, and are today, than pensions. I don't think you will have too many people pulling out of MFs. The redemption rates post Black Monday were remarkably small. It was the pull out of speculative investors that burst the bubble, not the pull out of long term investors. The MFs are more than likely a stabilizing force. Ido> News, opinions, and gossip: Durable Goods Orders up healthy Ido> 2% in Nov, a sign of growing strength in the economy. 4th Ido> increase in a row. A key indicator of manufacturing's vigor. Ido> "Should guarantee that we get real economic growth in 4th qtr Ido> of >4%. Signals that growth should carry over to next year". Ido> 5.3% rise in nondefense orders. "Reflects improving business Ido> confidence, and improving confidence in the sustainability of Ido> the recovery". However, order backlog fell 0.6%, ninth Ido> monthly decline in a row. Suggest unused capacity-no need to Ido> increase employment. IBD 27/12/93 Ido> Personal Income, Spending Climbed Solidly. Eight month Ido> uptrend. Income grew faster. May indicate consumers has some Ido> staying power. "Reflects underlying strength in economy" IBD Ido> 27/12/93 Ido> NBR: "Auto sales are very strong. Housing and housing related Ido> sales are booming. Likely to sustain into next year" And all the way into 1996 from what I have heard. Ido> NBR: "Economy will grow into first quarter at 2.5-3%. However Ido> sustainablility is questionable. Backorders are down, tax Ido> hikes, unemployment. Mushiness in indicators. All indications are that the ecomony will continue to grow at a slow rate into 1996. It is about half the rate of a normal recovery, so everything is moving half as fast. Ido> NBR: "The economy has been generating 50-100k jobes/mo, than Ido> 100-50k and now it's 150-200k. If it sustains that level, it Ido> will grow at 3%." Jobs growth always accelerates in the fourth quarter. If in the summer it is still showing major declines, we can take note. In the meantime, I wouldn't fret much. Ido> NBR: "3 of everything: 3% real growth rate, 3% inflation, 3% Ido> fed funds and 2 times 3% on notes. Actually I lowered Ido> inflation rate to 2.5% since I estimate oil prices lower Ido> 2$/barrel, which makes a significant difference" Ido> NBR: Alfred Goldman Dir, Market Analysis AG Edwards: Bullish: Ido> DJIA 3400-4100. Bests: 1. Drug/health care. 2. Construction, Ido> Home furnishing. 3. Telecomm. Ido> NBR: Ellaine Gazarelli, Mng Dir, Lehman Bro: Bullish. Bests: Ido> 1. Semiconductors, 2. Banks. 3. Machinery Ido> NBR: Eugene Peroni, Dir Tech Research Jannery Montgomery Ido> Scott: Cautious: Large correction at end of first quarter 94 Ido> to push DJIA below 3500. However, DJIA rising 200 from Ido> current level by end 94. Best: 1. Interactive TV, 2. Ido> Chemicals. 3. Electronic Comp. Large correction to below 3500? Hah. That ain't even 10% from 3800. That would be a very normal correction, and was inaccurately predicted for the end of the first quarter of 1993 by many experts. Ido> NBR: Stan Weinstein, Ed. Pro Tape Reader. Bearish: DJIA Ido> already discounted for any growth. DJIA 3900->3200. Avoid: Ido> 1. Brokerage firms. 2. Aggressive growth. 3. Telecomm. Ido> James Stack, Ed. Investech Research: Bearish: with Fed Ido> correction now imminent, time for cashing out. Dow will peak Ido> at 3850 before falling 800 points, although he sees a major Ido> comeback. Best: 1. Paper products 2. Oil products. 3. Ido> Chemicals. Ido> Market Averages are above their 200DMA and the 200DMA is Ido> uptrend Ido> NBR: "There are no fundumental changes to make the economy Ido> grow. Consumer spending is taxing their savings. Unemployment Ido> haven't improved. I predict oil prices to climb back up. We Ido> got a break last year, and it won't last" Now you just said unemployment improved above. A bit contradictory. Unemployment rates are getting better, but in this slow growth economy, they will take a longer road to improvement. The savings issue is bologna. The employment pages are booming with ads versus two years ago. All initial spending into a recovery comes out of savings as people get more confident in their income prospects. Oil prices rising? Oh fret, fret fret. They are the lowest they have been in a decade. Even a 30% rise in prices would still be cheap. Iraq and OPEC are disorganized and the world supply constitutes a glut. The winter is relatively mild so far (I say this as we are experiencing a cold snap). We are in the strongest season for oil and the prices are down severely. What do you think will happen when the spring comes and the demand dries up? Think prices will go up? Think again or think wrong. Ido> NBR: "Feds are not going to make a preemptive move. They are Ido> going to be market followers just like they have been in the Ido> past year" Again indicating that you will have plenty of time to change your investment strategy after the Fed reacts. larry_rogers@dg.com Data General 508-870-8441 Westboro, Mass. The opinions contained herein are my own, and do not reflect the opinions of Data General or anyone else, but they should. BBS: ExecNet Information Systems - New York 914 667-4567 Date: 12-29-93 (23:18) Number: 37755 To: ALL Refer#: NONE From: BARTANA@UNI.COLORADO.EDU Read: NO Subj: We are looking at a Big B Status: PUBLIC MSG Conf: Misc.Invest (1291) Direction: FORWARD I think we are looking at the end of the bull market, and a bear market starting in the first quarter of 1994. The vast majority of the indicators say so. Since I'm new to the stock market, I'd appreciate any feedback on the following analysis. Market Analysis Dec-26 1993, based on Investor's Business Daily data. # Indicator Value ================================================================ 1 Advance-Decline line Decline since Oct Notes: A-D is down since late October with small, unsuccessful rallies in Nov, probably due to holiday season. It has diverged from market averages. This is a typical pattern to an end of a bull market. A-D line has an impressive record of forecasting major market tops. 2 IBD600 Acc/Distribution B- Notes: Reinforces A-D line showing 3 Crossing of moving average IBD6000 maintaining level above its 200DMA Notes: It's holding so far, but recently flattened slightly. Market is distributing as it is advancing. 4 Mutual Funds Cash Positions 8.8% Notes: has been declining since Apr. >12% Bullish; <9% Bearish Bearish outlook. 5 Fedseral Reserve Board Discount rate 3.5% Notes: Low, but rumors of imminent tightning. 6 % Invest. Advisors Bearish: 37 (35%-Bulish; 55% Bearish) % Invest. Advisors Bullish: 40.4% (50%-Bullish, 20% Bearish) Notes: If market trend is positive and there is a large bearish reading, its time to buy. When bulls climb to more than 54% and bears dip below 20%, expect a drop in the market. Right now this shows closer to bullish trend. 7 Bull market age <3 years old Notes: >>avg. Likely to top soon. 8 Divergence in market indexes None Notes: All averages maintain level higher than their 200DMA. Market top may not be imminent, but see 1,2,3. 9 Odd Lot Short Sales: 1.52% Notes: Contrarian: The higher the ratio, the more bullish the market. Currently it's relatively low, but higher than 0.5. Does not give a definite trend. 10 Short Interest Ratio 4.70 Notes: <2.5% Bullish; <1.5% Bearish. Clearly bullish 11 Specialist Short Sales: 0.87 Notes: (>0.6 Bullish; <0.35 Bearish) Psychological: Not infallable. Slightly bullish. 12 Mutual Fund Share Purchase/Redemptions (excluding Money Market Funds) 2.24 Notes: Value is midway for past 12 month but closer to 5 year high. Neutral 13 AMEX Daily trading Volume as % of NYSE Daily Volume: 7.33% Notes: Halfway between 12mo and 5 year hi-lo. Neutral 14 OTC Daily trading Volume as % of NYSE Daily Volume: 108% Notes: Above 100, indicating a market top, but not as effective since in recent years big league is staying in NASDAQ (Microsoft, for example) 15 Number of Stock Splits in IBD6000 106 Notes: Near a 12mo high (111) and 5 year high (127) Indicates entire market may be topping. 16 New Issues in Last Year as % of All Stocks on NYSE: 32.4% Notes: At a 5 year high! Clearly indicates a market top 17 Price-to-Book Value of DJIA 3.57 Notes: Very close to a 5 year high (3.58). Market is clearly overvalued. 18 P/E Ratio of DJIA 21.6 Notes: Near a 12 mo low (20.4) but in between a 5 year range (10.1-40.6) not conclusive but slightly bullish 19 Current Dividend Yield of DJIA 2.67% Notes: Very close to a 5 year low of 2.66%! Just like a month before black Monday! News, opinions, and gossip: Durable Goods Orders up healthy 2% in Nov, a sign of growing strength in the economy. 4th increase in a row. A key indicator of manufacturing's vigor. "Should guarantee that we get real economic growth in 4th qtr of >4%. Signals that growth should carry over to next year". 5.3% rise in nondefense orders. "Reflects improving business confidence, and improving confidence in the sustainability of the recovery". However, order backlog fell 0.6%, ninth monthly decline in a row. Suggest unused capacity-no need to increase employment. IBD 27/12/93 Personal Income, Spending Climbed Solidly. Eight month uptrend. Income grew faster. May indicate consumers has some staying power. "Reflects underlying strength in economy" IBD 27/12/93 NBR: "Auto sales are very strong. Housing and housing related sales are booming. Likely to sustain into next year" NBR: "Economy will grow into first quarter at 2.5-3%. However sustainablility is questionable. Backorders are down, tax hikes, unemployment. Mushiness in indicators. NBR: "The economy has been generating 50-100k jobes/mo, than 100-50k and now it's 150-200k. If it sustains that level, it will grow at 3%." NBR: "3 of everything: 3% real growth rate, 3% inflation, 3% fed funds and 2 times 3% on notes. Actually I lowered inflation rate to 2.5% since I estimate oil prices lower 2$/barrel, which makes a significant difference" NBR: Alfred Goldman Dir, Market Analysis AG Edwards: Bullish: DJIA 3400-4100. Bests: 1. Drug/health care. 2. Construction, Home furnishing. 3. Telecomm. NBR: Ellaine Gazarelli, Mng Dir, Lehman Bro: Bullish. Bests: 1. Semiconductors, 2. Banks. 3. Machinery NBR: Eugene Peroni, Dir Tech Research Jannery Montgomery Scott: Cautious: Large correction at end of first quarter 94 to push DJIA below 3500. However, DJIA rising 200 from current level by end 94. Best: 1. Interactive TV, 2. Chemicals. 3. Electronic Comp. NBR: Stan Weinstein, Ed. Pro Tape Reader. Bearish: DJIA already discounted for any growth. DJIA 3900->3200. Avoid: 1. Brokerage firms. 2. Aggressive growth. 3. Telecomm. James Stack, Ed. Investech Research: Bearish: with Fed correction now imminent, time for cashing out. Dow will peak at 3850 before falling 800 points, although he sees a major comeback. Best: 1. Paper products 2. Oil products. 3. Chemicals. Market Averages are above their 200DMA and the 200DMA is uptrend NBR: "There are no fundumental changes to make the economy grow. Consumer spending is taxing their savings. Unemployment haven't improved. I predict oil prices to climb back up. We got a break last year, and it won't last" NBR: "Feds are not going to make a preemptive move. They are going to be market followers just like they have been in the past year" type 'finger bartana@sashimi.colorado.edu' for my address index card.