Market Indicators - Investor Sentiment

Top 944. Aug 5, 2004 3:16 PM

» Normxxx - Re: Re: Re: Re: 'Investing Ugly'

In response to message posted by bob90245:

Oh yes, I surmised that Swedroe could fit it all in to the (more or less) accepted notions of value and growth; but I still think he is bending the definitions.

Remember, I went back to school to get an advanced degree in psychology, and nobody can play as fast and loose with language as a psychologist! So, being a fairly rigid scientist (I used to critique exprimental model designs), I am fairly rigid when it comes to definitions. I insist that if you are going to redefine a convention, (even if ever so slightly) then you must come up with a new word or always attach a suitible modifier to the old word.

As commonly defined, value companies are anything but risky! So that is a flat contradiction to the efficient market hypothesis as described above. Swedroe has altered the common definitions of value and growth companies in order to rescue the 'efficient market hypothesis.' But that is not allowed!

As I have said, most 'value' companies have anything but uncertain prospects-- that is why they generally have low P/Es-- there is no potential for a 'growth' spurt, which is why the market rewards 'story' companies with outsized prices, earnings or not, because they do have such potential. In the market, expectations rule! If I can project what a company can earn in three, five, or ten years out (because it is not expecting any outsize growth spurt), that is a boring company deserving of a boring P/E. If I can hope for an earnings explosion, based on what the stock has done recently, or sometime in the past, or based on its 'story,' then I am willing to gamble on a much richer P/E! The market puts a premium on potential. But the data show that that premium is invariably too high!

-- posted by Normxxx

Top 945. Aug 6, 2004 7:19 AM

» bob90245 - Re: Re: Re: 'Investing Ugly'

In response to message posted by Normxxx:

I suggest you do an internet search on 'value stocks' and 'growth stocks.'

I posted an article on the U.S. Stock Market Message Board

-- posted by bob90245

Top 946. Aug 11, 2004 11:24 AM

» Normxxx - Global ViewPoints

Global ViewPoints

by Ivan D. Martchev and Yiannis G. Mostrous, KCI Comm. | 10 August 2004

Global ViewPoints is a weekly e-letter written by Ivan D. Martchev and Yiannis G. Mostrous and published by KCI Communications. In addition to the Global ViewPoints, the editors also publish a monthly financial newsletter called Wall Street Winners and a trading advisory called Trading Floor Pro.

A Summer of Disbelief

“Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.” --Aesop

It’s easy to come to the conclusion that the masses were expecting a good employment report on Friday; otherwise, the selling wouldn’t have been so relentless. And the fact that it was relentless after a nasty day last Thursday reinforces the idea that indeed the majority of Wall Street didn’t see this one coming.

Friday’s dismal employment report suggests that the idea the economic recovery was self-sustaining, championed by Fed Chairman Greenspan as soon as July 20 at the very opening of his congressional testimony, has some serious issues when confronted with economic reality.

It’s brutally obvious that the buyers of US equities over the last six months have had no exit strategy. The subsequent breakdown below the May lows on all major indexes on rising volume has completed a massive “distributing top.” Yes, short-term oscillators are oversold, but the completion of the top that has taken six months to form is much more meaningful.

There’s been no capitulation phase in the decline--only overzealous traders who’ve tried to buy dips and oversold signals and have repeatedly been stopped out. This is classic, as the market is climbing down the proverbial wall of hope and market participants are fighting the tape to the best of their abilities. It’s never worked before (we’ve all been there) and it’s not going to work now.

The Dow and the Nasdaq closed marginally lower on Monday after trying to hold on to gains for most of the day, while the S&P closed up a glorious 1.25 points at 1,065 and well below its March and May lows. We have a clear trend of three lower highs and three lower lows on this most important of market indexes and no sign of capitulation.

Here’s something about capitulation that most don’t appreciate. That comes after prolonged declines when investors just throw in the towel. On July 1, we were within striking distance of the highs for the year and have just recently completed a major top. There’s no prolonged decline of which to speak. If you’re looking for a major bottom, you should start looking a couple of months into the fall. We may have a rally before that, but we doubt that would mark “a bottom.”

Something is badly amiss if interest rates are rapidly dropping when they were supposed to be rising just as rapidly due to the “self-sustaining recovery.” The bond market disagrees with the Fed Chairman on that one vehemently. A look at the 10-year Treasury Yield Index (TNX) says quite a bit with interest rates on an accelerating decline since early June--the index shows the 10-year yield at 10x.

When financial stocks (the biggest component of the S&P 500) are weakening in the face of falling interest rates, there can be only one reason: Economic deceleration. We seriously doubt that after the majority of investors just found out their forecasts were erroneous, they would aggressively start accumulating stocks here. Thus, a lot of rallies will be used as opportunities to short/sell out of stocks. Quite a few financial stocks look like good shorts here and not many look like buys.

A lot can happen over the next couple of days with a Fed rates announcement at 2:15 pm on Tuesday and Cisco’s earnings report after the close that same day. The market believes the Fed will raise interest rates 25 basis points no matter what. But the interesting part will be the Fed’s statement and how it rubs on investors. They already tried to buy after the July 20 speech and that cost them precious dollars.

Also, Cisco has gotten so large as a company that it’s quite difficult to surprise on the upside, given there’s been clear softening of economic data over the last couple of months. If the past quarter is OK (which one cannot be certain about given the economic numbers), then there’ll certainly be issues with the company’s guidance. CEO John Chambers is “a master of spin,” but even he sometimes believes it’s prudent to be restrained. While we have no way of knowing what mood he’ll be in tomorrow, the evidence suggests the cards are stacked against him and his company.

In other words, a rally is possible--but only on a temporary basis, as there hasn’t been a washout low yet. Therefore, it’s difficult for us to be excited about any upside here.

In the grander scheme of things, the S&P 500 Volatility index (VIX) has been trying to bottom out since March. On this long-term chart, it has either done so already or the bottom will be complete on a trade above 22. Historically, bottoms in that index have meant that extreme highs have followed. Keep that in mind.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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Top 947. Aug 17, 2004 7:27 PM

» Normxxx - Article of the Day

Article of the Day

by Jay Taylor | August 16

Insiders Are Running From The Market!

Wave after wave after wave of insider selling and almost no insider buying is the pattern we see day after day as reported in The Wall Street Journal. CNBC won’t talk about it, but The Wall Street Journal publishes statistics provided by Thomson Financial. What the Journal publishes are the top ten insider buyers and top ten insider sellers each day. And then once per week they provide a summary for the week of the top ten sellers and top ten buyers.

For the last week in July, among the top ten, there was $143.6 million of insider sales vs. $35.6 million of insider purchases. However, the sales to purchases are much more lopsided than this, judging by the daily statistics because the cumulative magnitude of sellers to buyers is masked by picking only the top ten largest in both categories. For example, in reviewing the numbers for August 2, 2004, I see a total of $93.6 million of insider sales among the top ten sellers and only $1.6 million of insider buyers among the top ten buyers. That amounts to $58 sold for every dollar purchased. On a daily basis the ratios are from a low of around $10 sold for every $1 purchased, to a high of closer to $100 to $1.

Who are some of the big name insiders who are taking millions upon millions of dollars out of the market as CNBC keeps telling small fry investors to keep pumping their 401-K money into stocks? I see Bill Gates has taken close to $200 million out in the last few days. Larry Ellison of Oracle Corp. has been pulling tens of millions out day after day. Top bigwigs from Dex Media have pulled upward to $1 billion out over the past few weeks. Many more hotshots have not only been taking a few chips off the table but have been running like mad out of the market. I wonder where their money is going? Gold perhaps? That you won’t find out until gold has its run to well over $1,000 per ounce. But no doubt these guys are also getting much of their wealth offshore so that when the fecal matter (the dollar) hits the rotary oscillator here in the U.S. When most Americans have seen their dreams of a comfortable retirement washed down the drain, the ruling elite will no doubt have their wealth already safely squirreled away in a Swiss account, quite beyond the reach of armed tax bureaucrats.

Since listing only the top ten insider sellers masks the magnitude of the insider-seller-to-insider-buying ratio, a review of insider-seller-to-insider-buyer by industry no doubt provides a more accurate picture. Following is a list of insider seller and insider buying by some major industry sectors.

Insider Sales/Insider Purchases by Industry Sector

So for the last week of July 2004, as reported in The Wall Street Journal, there were nearly $1.5 billion of securities sold by insiders compared to $48.5 million bought. That works out to a ratio of around $30.80 of securities sold for every $1 purchased. If the CEO and other high ranking members of management, who are in a position to see the future of their companies better than anyone, are selling their stock in droves, why should you continue putting money into stocks in your 401-K program?

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 948. Aug 25, 2004 3:40 PM

» Normxxx - Re: Bears Increasing!

In response to message posted by Kirk:

Great! Timing's a little early here for the major November - January rally (I am still expecting a strong September and the usual [but muted] September - November downdraft). But we may be building a bottom here for the contra-seasonal September rally I am expecting.

-- posted by Normxxx

Top 949. Sep 21, 2004 12:07 PM

» Normxxx - Yields and Semis

Yields and Semis

By Alan M. Newman, Editor, Crosscurrents | September 21, 2004

If ever there was a reason to buy and hold shares, dividends are it. Payouts for the S&P 500 companies have increased 12.1% over the past 12 months while the index itself rose 8.9%. Trouble is, yields have remained constant, barely budging from 1.71% to 1.76%, so there is still a huge gap between what used to function as fair value and today. Can this gap endure forever? Not likely. As we have shown with countless charts in the last five years, bear markets typically begin when the dividend yield sinks below roughly 3% and bull markets commence when the yield rises to about 6%.

Courtesy of our colleague and technician Ian McAvity, the following trivia becomes pertinent. The last time the S&P yield was above 4.00% was Oct 26, 1990 at 4.01%. The last time the S&P yield was above 6.00% was Aug 20, 1982, at 6.07%. At the Friday Oct 4, 2002 bottom, the S&P yield was 1.98%, in stark contrast to the record low 1.07% yield at the Sep 1, 2000 secondary top. (Yield levels since Sept 1995 have been below prior record low levels, dating from 1928.) At the 'generational low' of Oct 4, 1974, the S&P 500 yield was 5.97%. At the 'valuation low' of that era, Aug 6, 1982, the S&P 500 yield was 6.63%.

We extrapolated dividend growth at the last 12 month's fairly generous rate out five years to make our point. According to McAvity, the average yield over 75 years from 1928 to 2003 has been 4.007% and the median yield was 3.765%. After five years, we can expect S&P dividends to be 78% higher than today, provided we also submit that all goes well with the economy, earnings, interest rates and a host of other factors. Yet, at the average yield, the S&P would trade at only 933 and at the median, the S&P would still trade down as low as 876. In either case, the result is at least 17% lower than today and a good reason to abandon the theme of buy-and-hold.

Recently, a new "four letter" word had entered the vernacular. Semi. If you dared utter it, all around became tense and angry, reminded of the dramatic collapse in semiconductor stocks from their January 2004 highs. Well, if you were ever looking for the reason why you are a subscriber to our perspectives, hark back to our February 23, 2004 issue (available in the subscriber archives) and re-read our analysis on "Semi Lemmings?" We pointed out the horrific ratio of insider sells to buys and an 82.4 P/E ratio for the top ten semi issues as evidence that " ....something does not compute."

We were actually a bit late, as the top for the SOX came on January 12th and a day later for the SMH, the easy way for Joe Everybody to play the entire Semiconductor group via the obligatory ETF route. The SMH had shed 9% before we were aroused, but even from the signaling of our tardy alarm bells, semis lost roughly one-third of their value. Within the group of ten that we had illustrated, Wall Street analysts had placed Buy recommendations on 51.2% and Sells on only 6%, leaving the remainder of 42.8% as "holds," that ubiquitous term that leaves virtually everything in doubt. The good news is that much of the potential for damage we alerted readers to has now occurred and prices are at more reasonable levels. As the recent semi rally commenced, P/E multiples had dropped to under 30 (imagine that!) and insider sales had fallen by 65%, a rather substantial amount.

The bad news is that Wall Street analysts are really no more inclined to do whatever it is they have been doing for years, rating the semis quite approximately as they had before and leaving no room for conjecture whether value exists now as opposed to back then. Of the top ten semis, buy ratings comprise 50.8% of the total and sell ratings only 3.6%. Holds came in at 45.5%. The overall ratings by analysts hardly budged! How can anyone make sense of this drivel? Prices plunge yet opinions waver only in the slightest degree. The group was a buy then, the group is a buy now. Who in heaven's name can know from analysts that seemingly never waver more than a hair from here to there? And there's more bad news. Although sales dropped and the number of shares sold plunged even more, the ratio of shares sold to shares bought by insiders actually rose from 171-1 to 608-1, more proof that the industry is clearly not favored by those in the know!

Despite the recent comeback in share prices, the reasons for apprehension cited in our February 23rd article still seem quite valid and follow for your edification. "Macabe Keliher recently reported in the Asia Times Online that China is about to flood the world with chips." The story claimed that "Beijing is funding and bankrolling what is being called reckless expansion in semiconductor fabrication plants." The Chinese government appears dead set upon providing the world with at least 20% of total chip capacity next year.

In fact, Morris Chang, the chairman of Taiwan Semiconductor Mfg. Co. told Asia Times that China's semiconductor industry would cause an industry wide recession in 2005. Keliher's story offers perspectives from Rick Hsu, semiconductor analyst at Nomura Securities, who claims "The overcapacity will be massive....taken with a modest fall in global chip sales, there will be a rough landing for the industry," and from Dan Hutcheson, president of US-based VLSI Research Inc, who says "Enjoy it while it's great, but expect a decline on the order of 30 percent to start in late 2005."

Insiders apparently started their exodus early. That they are still in exit mode does not calm our apprehensions about 2005. February's fears would still seem intact.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 950. Oct 8, 2004 11:34 AM

» Normxxx - Millionaires Less Bullish

Well-Off Investors Feeling Less Bullish

NEW YORK, 8 October 2004 (Reuters)— Well-heeled investors have been feeling worse about financial markets as this year has progressed.

Investment optimism among U.S. millionaires polled monthly by Chicago-based consultants Spectrem Group fell in September to a new low as uncertainty over the economy, terrorism and the presidential election clouded their outlook.

The Spectrem millionaire index, which measures the investment outlook of about 100 households with assets of $1 million or more to invest, recorded its third straight decline and hit the lowest level since the index was started in February.

[Normxxx Here: Great news! Must mean we are closing in on the market bottom for the year. ]

Its sister index, the broader Spectrem affluent investor index, which since February has polled 250 households with $500,000 or more in assets to invest, also recorded its third straight decline, edging closer to bearish territory.

"Millionaires have been measurably more optimistic than affluent investors through the bulk of this year" and only now are "losing their last hint of bullishness," said George H. Walper Jr., president of Spectrem Group, in announcing the results this week.

Spectrem Group is a consulting firm specializing in the affluent and retirement markets.

"When asked about the most serious threats to their financial goals, these millionaires expressed far more concern about terrorism than affluent investors as a whole — with terrorism ranking behind only economic performance," Walper said.

"If news from the Middle East is starting to take such a toll on this generally more patient and positive group, it is not at all clear that sentiment will rebound once the November election is behind us."

In response to the open-ended question about the biggest threat to their household financial goals, the millionaires surveyed cited their key concerns, in order, as the economy, terrorism, the presidential election, unemployment, stock market performance and household income.

By contrast, the broader affluent investor group ranked the economy, the election and unemployment as greater concerns than terrorism.

The millionaire index recorded a new low of 7, a sentiment considered neutral, in September; that was down from 13, or mildly bullish, in August. The broader affluent investor index also hit a new low at 4, down from 5 in August. The index scale is 1 to 100, with 100 the most bullish possible reading.

The indexes are based on 250 10-minute telephone interviews each month.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 951. Oct 11, 2004 7:13 PM

» Normxxx - The Wall of Worry Starts Crumbling

The Wall of Worry Starts Crumbling

By Helene Meisler, RealMoney.com | Monday October 11, 9:30 am ET

I know I've harped away at the [headline] put/call ratio and its refusal to go down for the past several weeks. So it should come as no surprise that my inbox was filled with questions about the high put/call ratio during Friday's decline.

[Normxxx Here: Ah, but the "pure" put/call ratio (described by me elsewhere, but essentially the put/call ratio for small traders of 10 contracts or less) dropped to .46 last week despite the losses in the broader market. This is the lowest reading since mid-July and is a marked difference from what we saw as recently as a month ago. The ratio is not yet in what I would call “sell” territory, but it’s getting closer, and is not something that is encouraging from the long side. ]

Yes, this [headline] indicator was high (1.01) on Friday. But for the first time, almost all of the other sentiment indicators are saying something different than the put/call ratio. Until the middle of last week, the Investors Intelligence numbers were saying that bullishness was not at extreme levels. And granted, these numbers continue to say bullishness is not extreme, but the fact that so many migrated from the correction camp (to under 25% for the first time in six months) says we've seen a material shift.

Also last week, the bullish percentage from the American Association of Individual Investors (who continue to vote more like traders than investors) shot up to almost 57%, a reading not seen since late June.

And finally, yet another sentiment indicator now shows more bullishness than we've seen since the final days of June as well: The Market Vane bullish consensus chimed in this week with a reading of 66%.

Therefore we can no longer say that folks are fighting the rally. We no longer have a wall of worry out there.

Another interesting development arose from Friday's action: the published numbers from the NYSE show a flat advance/decline line. Shockingly, the NYSE A/D line on Friday was absolutely flat. Yet take a look at volume: Downside volume beat upside volume more than 2 to 1. That's discrepancy No. 1.

Discrepancy No. 2 comes in the form of the common-stocks-only data. The published data show roughly 1600 to 1600, while the common-stocks-only figures show approximately 400 to 1000. Why? Well, I'm sure you saw the rally in bonds, and you know what that means: All of those bond funds, preferreds and other "bond"-type issues that get counted as stocks on the NYSE were up, yet operating companies were clearly not "holding up" in a similar manner.

Staying with the A/D line, let's not forget that the market is now overbought, although the Nasdaq can go another day or two. But it's not so much the prospect of an overbought reading that's a problem for the market. It's more that the Nasdaq and the S&P 500 rallied to higher highs (than this rally's previous highs) and the oscillators did not make higher highs. That's a negative divergence. And keep in mind that the 30-day moving average stopped rising two weeks ago.

And finally, a subject I have written about a lot lately is the 200-day moving average line. I believe that the exact level of this long-term moving average is not nearly as important as its direction. And as telegraphed several times in recent columns, this moving average stopped rising on Thursday. The rolling over of such a moving average tends to reinforce the resistance at that level now.

So while I would much prefer to see the [headline] put/call ratio showing too much bullishness so it confirms the other sentiment indicators I follow, there is enough other evidence that we are late in the rally. I believe we will see a difficult week for the market.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 952. Oct 11, 2004 8:16 PM

» BoltonCT - Last call. All aboard?

The market cash flow index (MCFI) for the higher beta NASDAQ stocks fell slightly four of the last five days but shows no evidence yet of a false breakout. Definitely volume increased with increasing prices and only fell off slightly with the decline in the last few days and holiday. Definitely the market shows signs of warming up.

The MCFI for the NYSE continued improving three of the last five days but unlike the NYSE price average, it still has not broken out. Definitely the technology stocks are leading the way upward, not the core industries.

The houseware/furniture sector took a big hit based on the single month-September. How unfortunate it is that advisers and commentators are so near sighted. Cisco still has not recovered from its hit. Much will depend on the quarterly reports.

Gold is within 0.25% of a breakout and seems to be hesitating before making the jump.

The weak hearted are fleeing the market by the droves and can be expected to panic later and get back in. The permabears are dredging up and posting every bearish article they can find and spreading their gloomy chat everywhere. They are wailing that the wall of worry has crumbled and we are all doomed. They show nine month cycles patterns that they claim are supposed to imply we are at a market top, except that they show that when the same pattern we have today occurred the last two times... major market upside breakouts occurred. The bears are absolutely frantic as the market gets ready to leave them behind

The market will tell us who is right within two weeks.

-- posted by BoltonCT