Being Street Smart
Factoring In Fear
by Sy Harding, Street Smart Report Online
An
overworked cliché in the aftermath of the events of September
11 has been President Roosevelt's famous assurance to the people
of the U.S. during World War II, "We have nothing to fear
but fear itself!"
From the way the stock
market has been able to shake off the continuing bad news after
its initial reaction to the terrorist attacks, many investors
seem to accept the wisdom in that statement.
If told a month ago
that the next several weeks would include - in addition to a
continuation of disappointing earnings and economic news - further
ugly warnings from bin Laden, an almost war-mode status at home,
the initiation of military action overseas, and fears of biological
warfare as the next terrorist tactic, few would have expected
the stock market would stage an impressive three-week rally.
Yet that is what happened.
It certainly does raise
the fear factor to see military personnel, openly armed with
automatic weapons, patrolling airports and the streets around
government buildings, and fighter aircraft patrolling the skies
over major cities. The competition in the print media to see
which can produce the most panic-inducing anthrax headlines,
and on TV the most disturbing side of each day's news, provides
a background that hardly aids the cause. Nor does Congress fleeing
its post serve to instill confidence in the nation.
But the market seems
to be peering through the current fears, to the recovery it hopes
will lie somewhere beyond the present situation. Three weeks
of impressive rally, followed this week by what in normal times
would also be considered normal - some mild profit taking and
consolidation indicates the market may be willing to climb its
traditional `wall of worry', even if this time the worry is fear
itself.
It's interesting that
so far the market seems to be taking a more rational approach
to the situation than the rest of the country. Thousands upon
thousands of anthrax scares have been investigated and turned
out to be hoaxes or reactions to suspicious looking but innocent
events, while there have been only six actual cases of anthrax.
No doubt a few of the additional instances of positive `exposure'
may result in more actual cases, but so far virtually all such
tests have come back negative for the disease. Dr. Stephen M.
Ostroff, chief epidemiologist at the National Center for Infectious
Diseases, recently said, "If there was a significant public
health risk there would have been more illnesses."
Meanwhile, Washington's
aggressive fiscal, monetary, political, and spending response
to the events of September 11 supported the improvement that
was showing up in our normal technical analysis of the market's
underpinnings, convincing me to take the double-digit profits
in late September on the short-sales we held since July, and
move to the bullish side. The market, which normally anticipates
economic conditions six to nine months in advance, should be
able to rally through the winter on hopes that those aggressive
measures to re-stimulate the economy will have the economy recovering
sooner than was previously possible, perhaps as early as the
second quarter of next year.
However, the market is acting normally in spite of the nation's fears. If that normalcy continues it should include a significant rally during the market's usually positive seasonal period of November to April, and it has the oversold conditions and improved hopes for the economy to bottom in the first half of next year, to support such a rally.
It's also interesting to note that the latest data shows investors pulled $32 billion out of mutual funds in September, the third straight month of withdrawal from the market. The last time mutual funds saw three months in a row of withdrawals was also from July through September, in 1990, just one month before that bear market's bottom on October 11, 1990.
And preliminary data indicates some money flowed back into mutual funds in the first two weeks of October.
Editor's Note: Sy Harding is president of Asset Management Research Corp., 169 Daniel Webster Hwy., Meredith, NH 03253, publisher of The Street Smart Report, 1 year, 17 issues, $225 (now in its 14th year of exceptional market research for professionals and serious investors) and The Street Smart Report Online at www.StreetSmartReport.com. Mr. Harding has been consistently ranked in the Top Ten Timers by Timer Digest for the last 10 years. He authored the book, Riding the Bear How to Prosper in the Coming Bear Market, $12.95. In Riding The Bear, Mr. Harding explains not only bear markets, but how bull and bear markets get started and end; how public investors can break their pattern of only becoming interested in bull markets in their final stage, get killed, and then are too scared when the next bull market begins. He explains in plain English how the market reacts, how cycles work, and how to take advantage of them to hold onto your bull market profits and actually increase them during a bear market. Harding also explains the Seasonal Timing System in detail. Available at book stores, and Barnenoble.com or is FREE as a bonus with a subscription to Sy Harding's Street Smart Report.
