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The Recent Market Crunch ? Like What Crunch? 4.20.2007
HERE?S WHAT WE SAID ON 3.6.07:
?WHAT?S GOING ON?
The recent market crunch, while disconcerting to the pundits on CNBC and Bloomberg, is in my opinion a pre-cursor to the potential of a very strong, perhaps overly strong, market rally later in the year.
Here is what it looks like [close of 3.5.07]:
NASDAQ COMPOSITE [2340.58 ? S & P 500 1374.12]
DOW JONES INDUSTRIAL AVERAGE [12050.41]
It is important to stay focused and to stay invested
So, although we know it is sometimes painful to experience down drafts like the one currently in play, we still know of no fundamental reason to jump ship. Anyone who is negative on the U.S. equities market or negative even on high-tech [which we have very low current exposure to] is likely to be wrong in any rational time frame.
We expect the possibility of some further deterioration and this could hasten the potential for a dramatic up-move because of news perhaps from the Federal Reserve dropping rates or some kind of dramatic positive move in Iraq. If one believes in the primary law of physics, ?that to every action there is an opposite and equal reaction,? then we can soon expect that ?equal? reaction. My only disagreement with this is that the up-move will be measurably more than a simple ?equal? reaction?. I think that it will set up a very strong up-move, perhaps on very, very high volume toward the end of the year and that move could be so strong that we would classify that very profitable UP-MOVE [to us] as NEGATIVE. As strange as it sounds we would then suggest that it would be time to pull the plug and go to cash. We are not there yet, we do not have rapid UPWARD price movement and we have had very, very low evidence of volatility until this particular down move. That to use a gross example works like an enema, it clears the track for that dramatic and very fruitful speculative up-move later in the year. In the meantime?we will monitor events and markets.?
And since that letter the markets not only have not only made up the ?crunch? but added some as well [S & P 500 1374.12 on 3.5.07 and now 1470.73; the Dow was 12050.41 and now 12808.63 and the Nasdaq Composite 2340.58 to a current 2505.35 with the Utility index at a new all-time high [515.56]. Quite respectable indeed, wouldn?t you say? Of course you would say that].
But the ?crunch? was useful in that it outlined the downside short-term risk in the market and identified some downside targets in groups and stocks that we find of interest. Now our stocks and groups of interest are not recommendations ? they are exactly what I have stated-they are stocks and groups of interest. We also have many stocks and groups of absolutely no interest buy why mention those?
So let?s take a look at some of those groups and try to determine interesting points of consolidation and probable areas of price difficulty on the upside.
LARGE, MEDIUM OR SMALL CAP?
There is a positive bias toward S & P 500 vs. the Nasdaq 100. That tells an important story right there. There is a positive bias vs. the S & 500?again, another story of interest. Still. We have a broad-based market strength as indicated by the Value Line [arth] Index and that demonstrates rather positive underpinning to the entire market. But the groups are not the typical groups that are of interest to us. Here are some [you don?t expect us to give away the store , do you?] of our views:
BETTER THAN MARKET PERFORM
S & P Mid Cap
S & P 100
We are venturing into territory that required diligence and awareness of one?s surrouindings. At this point we are not overly nervous but we could become so if we see rapid upward price movement, extraordinary increases in trading volume, good news.
Now I know you will say??What do you mean you will get negative if you see big volume, big increases in price and good news?? Yes, exactly, if the concept is to buy low and sell high, just tell me when highs are attained? Do we reach highs during diminished volume levels, crappy news, and LOW prices? Hardly. So, at the moment we have moderate volume, some upward price movement [the Dow at highs, but not the NASDAQ] and the news? Well, the news is mixed.
For the moment, we remain fully invested?but we will PROBABLY let you know when our attitude changes?for sure we will tell our clients and PROBABLY even those who are not our clients. But no guarantees, mate. And for the moment?no worries.