Rev Shark: "Morning Outlook"
Enviado: 9/7/2003 13:31Rev Shark
Morning Outlook
7/09/03 08:12 AM ET
"If I had to select one quality, one personal characteristic that I regard as being most highly correlated with success, whatever the field, I would pick the trait of persistence. Determination. The will to endure to the end, to get knocked down 70 times and get up off the floor saying, 'Here comes No. 71!' "
-- Richard M. DeVos
The persistence of the bulls since the recent uptrend started in March has been quite remarkable. Despite steady talk about stretched valuations and a struggling economy, the bulls shrug it off and just keep plugging along.
The strong technical patterns have been tested several times but have held when they needed to and eventually resulted in renewed momentum. The bulls are in control and we have to be very careful about underestimating their persistence.
On the surface the major indices indicated a rather mixed day yesterday but underneath there was some very impressive strength. Clearly, momentum traders are alive and well and looking for action wherever they can find it. The new-highs list continues to run at very high levels and traders are happy to pile into smaller stocks that show signs of vigor.
The million-dollar question this morning is whether the bulls can keep this move going without some sort of substantial rest. Anyone who has been involved in the markets for any length of time knows the answer to that is "no" but it is accurate timing of the breakdown of this rally that will make you rich. I don't care how bullish you are; sooner or later we are going to pull back hard. It might result in the resumption of the bear market or it might simply be very healthy profit-taking phase but it's going to occur and how you play it is going to have a substantial effect on your returns over the next six months or so.
The problem for the bears now is that there is no clear-cut catalyst to kill this rally. The bottom line is that people are making money on the long side, they are armed with massive liquidity, they want to believe the economy is improving, and the valuation arguments are too abstract and pessimistic to have any impact on their current actions. A charging herd of bulls is not halted easily.
The major issue on my mind right now is whether the upcoming second-quarter earnings reports are going to be the catalyst that trips up the bulls. I keep hearing how expectations for earnings reports are low and the likelihood is that companies will be saying positive things. Given the way this market has been acting for months now it looks like expectations have been building up very quickly and plenty of positive comments about the future are fully priced in.
As I said yesterday, we have the conditions in place for a "sell on the news" reaction to earnings. There has been a substantial ramp up in prices, there are expectations of very positive news, there are extremely high levels of bullishness (Investors Intelligence data out today show a jump back up) and we are entering a seasonal weak period for the market when people will want to lock in gains and take a vacation.
Our first big test of the reaction to earnings reports comes tonight when Yahoo! (YHOO:Nasdaq) reports. This report should be particularly instructive on the mood out there. Yahoo! has been a market leader for months, expectations for the earnings report are very high with many analysts looking for forward guidance to be raised, and no matter how you look at it Yahoo! is not a cheap stock.
In the early going we have some softness, which isn't particularly surprising after the big move yesterday. The markets shrugged off the early weakness yesterday and the bulls are going to try to do it again.
Microsoft's move to use restricted stock rather than stock options is the headline news and the stock is down slightly on the report. There is talk that this may result in a move toward more companies expensing options, which will suppress earnings and be cause for a pullback. The cost of options is no big secret and it certainly would be a surprise to see Wall Street suddenly pricing in this impact when it has ignored it for year. If nothing else, analysts are very good at breaking out items of this sort when they get in the way of buy recommendations.
Keep an eye on Yahoo! today as traders position themselves for earnings. It should provide some clues as the mindset that is in place."
(in www.realmoney.com)
Morning Outlook
7/09/03 08:12 AM ET
"If I had to select one quality, one personal characteristic that I regard as being most highly correlated with success, whatever the field, I would pick the trait of persistence. Determination. The will to endure to the end, to get knocked down 70 times and get up off the floor saying, 'Here comes No. 71!' "
-- Richard M. DeVos
The persistence of the bulls since the recent uptrend started in March has been quite remarkable. Despite steady talk about stretched valuations and a struggling economy, the bulls shrug it off and just keep plugging along.
The strong technical patterns have been tested several times but have held when they needed to and eventually resulted in renewed momentum. The bulls are in control and we have to be very careful about underestimating their persistence.
On the surface the major indices indicated a rather mixed day yesterday but underneath there was some very impressive strength. Clearly, momentum traders are alive and well and looking for action wherever they can find it. The new-highs list continues to run at very high levels and traders are happy to pile into smaller stocks that show signs of vigor.
The million-dollar question this morning is whether the bulls can keep this move going without some sort of substantial rest. Anyone who has been involved in the markets for any length of time knows the answer to that is "no" but it is accurate timing of the breakdown of this rally that will make you rich. I don't care how bullish you are; sooner or later we are going to pull back hard. It might result in the resumption of the bear market or it might simply be very healthy profit-taking phase but it's going to occur and how you play it is going to have a substantial effect on your returns over the next six months or so.
The problem for the bears now is that there is no clear-cut catalyst to kill this rally. The bottom line is that people are making money on the long side, they are armed with massive liquidity, they want to believe the economy is improving, and the valuation arguments are too abstract and pessimistic to have any impact on their current actions. A charging herd of bulls is not halted easily.
The major issue on my mind right now is whether the upcoming second-quarter earnings reports are going to be the catalyst that trips up the bulls. I keep hearing how expectations for earnings reports are low and the likelihood is that companies will be saying positive things. Given the way this market has been acting for months now it looks like expectations have been building up very quickly and plenty of positive comments about the future are fully priced in.
As I said yesterday, we have the conditions in place for a "sell on the news" reaction to earnings. There has been a substantial ramp up in prices, there are expectations of very positive news, there are extremely high levels of bullishness (Investors Intelligence data out today show a jump back up) and we are entering a seasonal weak period for the market when people will want to lock in gains and take a vacation.
Our first big test of the reaction to earnings reports comes tonight when Yahoo! (YHOO:Nasdaq) reports. This report should be particularly instructive on the mood out there. Yahoo! has been a market leader for months, expectations for the earnings report are very high with many analysts looking for forward guidance to be raised, and no matter how you look at it Yahoo! is not a cheap stock.
In the early going we have some softness, which isn't particularly surprising after the big move yesterday. The markets shrugged off the early weakness yesterday and the bulls are going to try to do it again.
Microsoft's move to use restricted stock rather than stock options is the headline news and the stock is down slightly on the report. There is talk that this may result in a move toward more companies expensing options, which will suppress earnings and be cause for a pullback. The cost of options is no big secret and it certainly would be a surprise to see Wall Street suddenly pricing in this impact when it has ignored it for year. If nothing else, analysts are very good at breaking out items of this sort when they get in the way of buy recommendations.
Keep an eye on Yahoo! today as traders position themselves for earnings. It should provide some clues as the mindset that is in place."
(in www.realmoney.com)