Give The Bulls Credit For Being Stubborn
By Brady Willett
If you had told me back in March 2000 that by March 2002 the Nasdaq would be down by 60+% and the majority of new 1990s investors would still be holding onto U.S. stocks I would have told you to check yourself into an asylum. Furthermore, if you had told me two years ago that the seventh largest company was going to implode, Argentina was going to blow-up, a new American led war would start in September 2001, every major investment house would be under investigation for conflicts of interest, and that the investing public would still be mostly cheery about stocks… well, I don't know what I would have said.
Suffice it to say, there is not enough superlatives to describe the acute stubbornness today's investing populace possesses. To be sure, with all the troubles over the last two years there has not been a mass exodus from U.S. stocks. In fact, during March Madness new equity fund inflows nearly hit $30 billion (or the entire sum of new flows in 2001).
Nevertheless, what is most surprising about the last two years is that many of Wall Street finest have yet to be run through the wash. Yes, the ludicrous Blodget types have been axed. However, people such as Joe Battipaglia and Abby Cohen are still making the rounds.
Wall Street Conflicts of Interest
The 'big news' is not that a couple of Merrill Lynch analysts were yelling 'strong buy' when calling the companies 'a piece of crap' in e-mails. Rather, the big news is that, once again, time and money is being wasted trying to uncover past conflicts of interest while more conflicts of interest are being committed on a daily basis.
Think about it: How many new regulations and laws have been formed since Enron? How many people went to jail? Suffice it to say, if it takes years to pass one meaningful regulation following the biggest U.S. bankruptcy ever just imagine how long it is going to take to even begin to clean up Wall Street.
Getting back to the initial point – investors are indeed stubborn. They have absorbed all of Wall Street's lies and hypocrisies and continued to come back for more. From my vantage point 'come back for more' means that once maniacal tech investors have not left the markets completely. Rather, they now wear the 'I am diversified' logo; they have purchased some smaller type stocks, opted for some lower commissioned ETFs rather than mutual funds, and even dabbled in gold stocks. In sum, so long as these people do not leave the markets and/or throw all their money into a DRIP and forget about it, they continue to do just what the Wall Street doctor ordered…
The reason why I keep harping on how resilient many investors have been over the past two years is because we may soon be entering one of the delightful market pauses that investors have come to know and love. By 'pause' that is to say a period of time when stocks drift higher simply because nothing terrible happens.
What happens during these 'pause' periods is that fund managers begin to place bets on the next shift in prices (which starts causing a shift on its own). Accordingly, if the next shift is contrarian to the most recent one there could be a slight run-up in stock prices.
'Pause' rally aside, it is difficult to see a fundamental shift in the markets occurring wherein prices attack March's highs. As such, range would appear to be the name of the game. Furthermore, it is likely that the current trading range will persist until either earnings recover or the economy takes another tumble. Given last week's poor employment results and weakness in the U.S. dollar, not to mention the regular bear's case, I'll go with the tumble theory.
That said, who knows, maybe today's shareholders who own companies with near record high P/Es and near record low dividend yields can keep holding on? Then again, last time I checked the belief that others will simply 'hold on' to a sinking ship was not a tempting reason to climb aboard.
Dow Jones Industrial Average - 10006.63
7513.40 (Jan 9,98) - Intraday)
7926.90 – Intrday Low (Sept 21, 01)
9,529.46 – Key Support (Jan 30, 02)
-- 10,000 (psychological resistance/support)
10728.90 – Key resistance (Mar 8, 02)
11908.50 – (Jan 14, 00)
Nasdaq - 1613.03
1387.06 – Key 'bottom' (Sept 21,02)
2000/3,000/4,000 (psychological battle zones)
1959.93 – Key resistance (Jan 24, 02)
5,000 (Maniacal Resistance)
5,132.52 (You can tell your grandchildren about it)
Brady Willett
BWillett@fallstreet.com
www.wallstreetwishlist.com
May 9, 2002
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