April 4 - The Bull Market Won't Die On Cue, But It Will Die
The Nasdaq dumped 7.6% yesterday, and only days before what should be blockbuster earnings reports are released. One can only imagine
what the drop will be like when the earnings begin to slow and sector rotation isn't an option.
The first quarter of 2000
ended with a whimper, but only after several gigantic bangs. With margin rates stretched, volatility spiking, and valuations still extraordinarily high, any negative news can crunch either major average lower
quickly, as yesterdays Microsoft debacle clearly displayed. This added volatility and nervousness could be foreshadowing troubles ahead despite what could be a month of reconciliation for Nasdaq stocks
beginning today. So sit back and enjoy the bull market magic show, but make no mistake, by years end we should be in bear land.
Individual
sectors and stocks continue to get hammered on almost a daily basis but other areas of the market almost religiously continue to benefit. It is almost as if analysts and investors huddle in the middle of
Wall Street after a steep sector slamming and decide were go next;. As biotech was crunched the move to chips stocks occurred, a rubbing of the internets flung the brokerages higher and most recently a complete
composite debacle on the first day of trading in the second quarter has some anticipating the next launch higher.
The Dow has similar sector gyrations. When Proctor and Gamble (household
stocks) collapsed and helped snag the Dow down to 9,731.92 it was the financial stocks and conglomerates which bailed the index out. Since the Dow reached its lows in March GE has become the next best
thing to sliced bread, the financial stocks have kicked up a rally, Honeywell has rebounded and United Technologies has scrapped itself off the pavement. For the most past the Dow has benefited from a dying
Nasdaq, but with an average P/E ratio of nearly 25 on Dow stocks this is hardly a time to consider blue chips cheap. Once again earnings should be strong so all is forgotten and dips are bought.
Yesterdays Nasdaq collapse and catapult higher in the Dow isn't suggesting immediate danger but more intermediate sector slitherings. Stocks are mindful of Greenspan's future actions but they are also aware
that inflation's number one fear in oil is gone, earnings season is dawning and we are in an election year. Add to the bull heap still near record equity fund flows, a treasury market off one its strongest
quarters ever and the welcoming word "margin" and you have significant room for these markets to head higher if psychology doesn't self destruct.
Nobel prize winning economist Franco Modigliani
"those who did well in `29 were those who sold too soon.".
It
may be a trivial point as to how high the Nasdaq can rebound in the coming weeks and possibly months. The only absolute left is that the ending will not be pretty and calculated, it will be a disgusting and
horrible event that must change the way people think about stocks. Negative 7.6% is a good start but after the bottom arrives this go round the Nasdaq should rally. This isn't so much a bullish comment on
tech stocks but a logical one.
The final volume tally yesterday was 1.74 Billion shares traded on the Nasdaq. This total doesn't display panic at all. When the Nasdaq tops 3-5 Billion shares traded,
circuit breakers are hit, masses of people are huddled all over Wall Street and Greenspan is setting up a crash war room then you know the ending has arrived. The bull still has a few more rabbits to pull
out of a hat before this happens
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