Seems you people are loosing faith in the market. Sounds like time to reinvest! (February 24, 2001)

  In an era where we see familiar television analysts each day and know what they are going to say before they open their mouths, we suppose it is easy to believe that all market students are either bulls or bears, and we view them as such. They have massive positions in certain stocks in their funds, and they want to see them do well. After all, they have placed their reputation on the line in making those purchases, and a chance to come on the air is a chance to try and pump up their stocks. They are then viewed as either bulls trying to prop up falling stocks or bears trying to keep the selling going and pump up defensive stocks.

Our view? We don't care. Sure we like to see the market go up because everyone is in a better mood because 98% of the world only plays stocks one way. Even in the bear market we get very little comment on or requests for downside plays; the vast majority want upside winners not downside winners. But when it comes down to it we treat the economy and the market the same: what are the numbers showing us? Are there more net buyers right now or are there more net sellers? Is the sentiment overly bullish, overly bearish, or neither? Is the market in an uptrend or downtrend? Is it ready to bounce to the upside for short term upside plays or is it hitting resistance for some downside plays? Is this stock ready for an oversold bounce, a roll back up, a breakout, or a breakdown? We will play them the way the numbers show us. Why? Because the hard numbers are much more accurate as they represent investor emotion in black and white, and not the hunches, emotions, or bias of the analyst.

Whenever we get roughed up by the market, the last thing we do is sit right down and start planning strategies on what is going to happen. Usually we have done that ahead of time so we can react as unemotionally as possible. Each day I head outside after the market close to get a clear head on what happened and what it may mean. Then I head back in and look at the hard numbers for the day and note if they changed and if so was the change important, i.e., did it change a trend, try to change a trend, what? Do the numbers suggest that I should take some action or just stay pat?

Thus, when we see distribution days on the Dow and S&P 500 as we saw the past two weeks, that tells us the character of those two indexes, indexes that had held up pretty well, was changing. When we see solid gains on rising volume give way to waves of even stronger selling, that shows us sellers are again preparing to take over. When we see the indexes undercut their lows prior to the beginning of the Fed rate cuts, that shows us that the market is not responding exactly within historical parameters. As we are students of history, that is important to us. We are not married to the upside or the downside; we just want to have a game plan to take advantage of the moves the market appears to be projecting based on the numbers. That way we don't get lost in a morass of emotion that can whipsaw you back and forth without a game plan.

We are reminded of a similar email received after the election in November. We were somewhat negative on the market at that point based on the political events and what the selling volumes were showing. The email was similar and said since we were negative it was time to invest. We really hope that person did not dive in deeply. The October bounce tried to make some headway, but it was failing and the numbers were showing it.

Right now the negative signals are again out in front of the positives, and while we might get an interim bounce, we are not going to get sucked deeply into a rally that peaks as fast as it started. Maybe there will be a catalyst this week that changes market character such as a third, big rate cut; those will ultimately win out, but with the market in a horrible downtrend and threatening another leg down, we have to see it do its magic. In the James Bond movie 'For Your Eyes Only,' while playing cards Bond is advised that the odds suggested standing on his hand. Bond responded "If you play the odds." Of course, Bond won the hand. Bond may do well playing hunches in the market, but we have not met many James Bonds either.


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