Being Street Smart
Next Buying Opportunity Approaching?
by Sy Harding, editor
Street Smart Report Online
Can
the economic, corporate, or market news get any worse? Perhaps
not.
And for the stock market
that just may mean a buying opportunity is not far away.
The U.S. stock market
continues to decline. International markets, which were touted
by Wall Street as potential safe havens, also continue their
bear market declines, leaving investors with few places to hide.
Economic numbers, which
had been encouragingly strong in the first quarter of the year,
have deteriorated enough in the last few weeks to confirm that
the economic recovery may be fragile at best.
This week the Fed's
Beige Book reported that economic growth is modest and uneven.
Economists were surprised by the report of a decline in retail
sales in May. On the jobs front, last month it was reported that
43,000 new jobs were created in April, encouraging the market.
But a few days ago that number was revised down to an anemic
6,000. That was a repeat of the pattern of recent months, with
the Labor Department releasing high jobs numbers for February,
then March, and now April, and then revising them down the following
month, even to job losses rather than gains.
The U.S. dollar continues
to fall against foreign currencies, raising the cost of imported
goods.
Terrorist fears, which
had begun to subside, returned to front pages in the form of
a `dirty' bomb threat, and the ease with which the ingredients
can apparently be found.
On Friday it was reported
that all-important consumer confidence has plunged to 90.8 from
the previous month's level of 96.9, not a good sign that consumer
spending will continue to drive the economy going forward.
The news from corporations
of still more scandals, insider trading, etc., is not providing
anyone with increased confidence in the stock market, or the
current value of stocks.
Nothing that Wall Street
recommends has worked out for investors for some time now. Even
the ability to provide meaningful guidance is put in question
when brokerage firms, as happened this week, finally decide that
it's time to downgrade the stock of Tyco after it has plunged
from $62 to $13, and Qualcomm, after it has declined from $176
to $1.70.
It's not surprising
then that investors are increasingly losing interest in the market,
as indicated by another $5.2 billion being withdrawn from stock
mutual funds this week, following outflows of $5.8 billion the
previous week.
In my 1999 book, Riding
the Bear How to Prosper in the Coming Bear Market,
I noted that based on the history of previous bear markets, the
next one would not end until the excited determination of investors
to pour all the money they could raise into the stock market
at its top, is replaced by a panicked determination to pull most
of their money out. History also shows that their previous enthusiasm
for the market will be replaced by an attitude of "swearing
off the damned market for good". Thus do the majority of
investors lose money in the stock market over the long-term,
by becoming unduly enthusiastic near market tops, throwing caution
to the wind when they should be taking profits, and then, totally
demoralized at the losses in the subsequent bear market, losing
interest just when they should begin to watch for a buying opportunity.
And so the pattern of buying high and selling low is perpetuated.
That is still my outlook, and the market is getting very close to those September lows, close enough for this type of work to have us paying attention. The low last September for the S&P 500 was 965. The September low for the NASDAQ was 1423.
Meanwhile, investor sentiment is getting about as pessimistic as it usually gets at intermediate-term market lows, and the market itself is also becoming quite oversold on technical indicators.
So, it's probably too late to take new downside positions in bear-type mutual funds or short-sales for this pullback, and getting close to time to take the profits from such positions, and to begin watching for this leg down to end.
Editor's Note: Sy Harding is president of Asset Management Research Corp., 169 Daniel Webster Hwy., Suite 11, Meredith, NH 03253, publisher of The Street Smart Report, 1 year, 17 issues, $250 (now in its 15th year of exceptional market research for professionals and serious investors) and The Street Smart Report Online at www.StreetSmartReport.com, 1 year, $225. Mr. Harding has consistently ranked in the Top Ten Timers by Timer Digest for years. In March 1999, he authored the book, Riding the Bear How to Prosper in the Coming Bear Market, $12.95. (the Dow topped out just 9 months later). 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. This highly recommended book is FREE as a bonus with a subscription to Sy Harding's Street Smart Report.
