For the better part of 2000 and 2001 and 2002 I have been consistently asked “well what the think about what so and so is saying about the market” the so and so being Abby Joseph Cohen, Joseph Batta Paglia, Hugh Johnson, my counterparts on the radio Rob Black, Tom O'Brien, Michael Gold - the stock Dr., and Bob Brinker.
It's hard to respond… on the one hand I'm not looking to insult anyone, on the other if they say something you ask me what my opinion is… and so I respond. Even though I would rather not. As of late Bob Brinker, a noted bear has joined the bullish camp . As my father used to say, “I wish him well” he has called these bottoms before with devastating consequences.
We can expect that into every rally there will be enthusiasm. We can expect that into every rally there is a pervasive bullishness. We can expect that into every rally the markets participants will be their drums the loudest at the worst possible moment. Everything that I have just said plays out in reverse in a bull market.
While I know, it's tempting to call bottoms in a downtrend, when securities prices are seemingly cheap what we know of bear markets is that cheap gets cheaper… just as what we know in bull markets is dear may get dearer… attempting to call a top while in an uptrend is just as foolish as trying to call a bottom in a downtrend therefore one should not attempt it.
The month of March saw prices go down to test the 800 level on the S&P 500 index… for the moment this 800 level has held however if it breaks it and I suspect it will price declines are likely to be extreme. As of this writing the S&P 500 index currently stands at 858.48 , what would be required for this direst scenario to play itself out would be a weekly close below that 800 level. As of last week the S&P 500 had a key reversal from the upside advance, this is bearish. Stochastics are overbought and rolling over and currently stand at 80, keep in mind in general anything between 80 and 100 is generally overbought.
What has helped me see the top and execute the right game plan of purchasing government securities, shorting stocks, and investing in bear market mutual funds, has been the correct worldview/macro/big picture/what does the landscape look like. I believe the markets ended a multiyear massive bull market crescendoing at the tale end of 1999 with massive enthusiasm, 240 PE enthusiasm ! And massive public participation. These beliefs have been born out and though not widely held are nevertheless self evident. What follows major market tops are the same things that follow major individual stock tops, the Nortel's, the Internet stocks, the juniper networks, these are all patterns that are played out on a much larger scale. Keep in mind those securities have the same crowd behavior operating that the larger markets have operating in them…
Another thing that you may find helpful seeing clearly, when there is such fog created by the nostrils of the Bulls… look at the long-term charts of stocks like Pfizer, IBM, General Electric, Disney, etc. etc. etc. (we are short Pfizer, IBM) what you see when you look at the stocks hopefully is that they are unresolved parabolics… parabolics do resolve, -and when they do it's usually down.
The market is a good teacher, by studying patterns in the market and of human behavior we can be well rewarded for our insights.
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