The 2003 - 2004 Bull Market Is Underway
By Donald Rowe,
The Wall Street Digest
The
Dow Industrials bottomed on March 12, 2003 at Dow 7,416. This
was a major bottom and probably the bottom for the decade. Edward
Yardeni, chief investment strategist for Prudential Securities,
is forecasting Dow 10,500 by year-end.
I firmly believe we
will see a new all-time high for the Dow Average and the S&P
500 by Election Day 2004. Here's why:
The Wall Street pros
and the Smart Money are very bullish:
1) The commercial
traders of the S&P 500 futures contracts (the Wall Street
pros) are now net-long after being net-short for the past three
years. To help you capture the significance of this "net-long
position," keep in mind that the commercial traders went
net-short in March of 2000 and stayed net-short for three years.
The S&P 500 was
down 10.1 percent in 2000, down 13.1 percent in 2001, and down
23.3 percent in 2002.
As we go to press with
commercial traders net-long the Dow Industrials are up 4.5 percent
year-to-date, the S&P 500 is up 7.6 percent year-to-date,
and the Nasdaq is up 16.2 percent year-to-date. You have heard
the expression: "Never bet against the Fed."
The same is true with
the Wall Street pros! They are never on the wrong side of the
market. Perhaps that is why some market observers call them "market
makers."
2) The Smart
Money continues to purchase stocks in the final hour of trading.
Stock prices gyrate during the morning in reaction to economic
news and the overnight performance of the global markets. Between
12:00 and 2:30 p.m., the traders and stockbrokers go to lunch,
which leaves the market vulnerable to the short-sellers.
Be sure to observe
the stock market performance between 3:00 and 4:00 p.m. If stock
prices move higher during the final hour of trading, the Smart
Money is buying.
If stock prices are
consistently moving lower in the final hour of trading, you know
the Smart Money is exiting the stock market and you should not
be picking up bargains on last hour pullbacks. Right now, the
Smart Money and the Wall Street pros are both taking bullish
positions in anticipation of much higher stock prices ahead.
3) Junk bond
prices are soaring! They always do right in front of an economic
recovery.
And when junk bond
prices rise, so do stock prices. They move up and down together.
Why do junk bond prices rise (yields fall) while the economy
recovers? Because a stronger economy reduces the risk level for
all bonds. Obviously, the corporate bankruptcy rate declines
during an economic recovery. Junk bond yields fall dramatically
during an economic boom because the risk level falls.
However, Treasury bonds
and AAA corporate bond yields tend to rise (prices fall) as the
economy gathers momentum because inflationary pressures rise.
I believe the easy
money has already been made in the bond market. The U.S. stock
market is the single best place to be. Stock prices will continue
to rise during this 2003 2009 bull market, while bond prices
will fall as inflationary pressures gradually rise!
Why Am I Forecasting A 2003 2009 Bull Market?
Do
you remember the recession and bear market of 1970, 1971 and
1972?
Do you remember the
recession and bear market of 1980, 1981 and 1982?
Do you remember the
recession and bear market of 1990, 1991 and 1992?
Do you remember the
recession and bear market of 2000, 2001 and 2002?
No one knows why this
ten-year cycle of recession and bear markets occurs. It just
does. Between now and 2009, investors will be able to make all
of their losses back and a great deal more. Over the next seven
years, we should be able to double our current wealth more than
twice.
But you will have enormous
difficulty doing so if you continue to listen to Wall Street
analysts.
Unlike the commercial
traders of the S&P 500 futures contracts, who are always
on the right side of the market. Wall Street analysts are always
on the wrong side of the market. In the chart below, notice that
Wall Street analysts issued far more buy recommendations during
2000, 2001 and 2002 when the market was consistently down. Now
look at 2003. Now they are on the wrong side of an up market!
Wall
Street Analysts'
Buy And Sell Recommendations
| Year | Buy | Sell | Hold | S&P 500 |
| 2000 | 74% | 25.4% | 0.6% | -10.1% |
| 2001 | 67% | 32.2% | 0.8% | -13.1% |
| 2002 | 60% | 36.0% | 4.0% | -23.3% |
| 2003* | 36% | 47.0% | 17.0% | 7.6% |
| *through 5-16-03 | ||||
The difference is a simple case of
motivation: The commercial traders work for themselves, seeking
a profit, while the Wall Street analysts work for large brokerage
companies, seeking job security and a hefty year-end bonus. The
analysts can accomplish both objectives if they issue stock recommendations
that help their employers' brokerage companies capture investment-banking
business.
Did the recent
$1.4 billion Wall Street settlement solve the "corrupt analyst"
problem?
I doubt it.
Here's why: Citigroup owns Goldman Sachs. CEO Sandy Weill "generously"
offered to pay $400 million of the $1.4 billion settlement fee
that was to be split among the ten largest brokerage companies.
Between 1999 and 2002, Goldman Sachs generated over $10 billion
in profits from investment banking deals.
A fine of only
four percent of the company's ill-begotten profit does not seem
commensurate to the "crime."
Stated another
way: Crime does pay when the cost of "doing business"
is only four percent of the profit. Just getting this scandal
off the front page helped launch the current bull market. Perhaps
that was the objective of the settlement. Historically, the individual
investor waits until a bull market is half-over before returning
to the equity markets. You must not wait that long!
The old Wall
Street adage of "Sell in May and go away" does not
seem to apply this year due to the three-year bear market.
The Wall Street
pros, the Smart Money, and yes, even Warren Buffett are busy
buying stocks to become fully invested in front of the 2003 -
2009 bull market. We can make a great deal of money between now
and the next 2010, 2011, and 2012 recession and bear market.
I am listing below the ten best stocks to purchase right now
if you are not yet fully invested.
If you are still
in cash, purchase the following ten stocks first: Altera Corp.
(ALTR), Biosite, Inc. (BSTE), Documentum, Inc.
(DCTM), Diodes, Inc. (DIOD), Foundry Networks, Inc.
(FDRY), Lexar Media, Inc. (LEXR), Packeteer, Inc.
(PKTR), Sandisk Corp. (SNDK), USA Interactive, Inc.
(USAI), and Value Click, Inc. (VCLK) all listed on the
Nasdaq.
Editor's Note: Donald
Rowe is editor of The Wall Street Digest, 8830 South Tamiami
Trail Ste. 110, Sarasota, FL 34238, 1 year, 12 issues, $150.
www.wallstreetdigest.com.
