A ‘Rolling Capitulation’
Market Trend: Down,
possible oscillation point
Market Outlook:
Neutral
Macroplays of
the Week: Chips,
(
NXTL |
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PowerRating),
(
SPAR |
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Position: Cash or nibble
around the edges of a rally, Short Housing Sector
The Broad Market
Outlook
You
can lose a lot of money trying to time a market bottom —
UNLESS you operate with very tight stop losses.
That was the lesson of last week — not to mention the last two years.
BUT I was actually heartened by what I saw in last week’s
action. Yes, we got yet another lurch
down through yet another Houdini bottom early in the week in what is becoming a
“rolling capitulation.†BUT,
the Nasdaq behaved quite resiliently and the S&P 500 stabilized by the end
of the week.
Sure, it
could all hit the fan this week — and all the more so because the market’s
woes have now spread to the front pages of Main Street newspapers.
But such coverage is, in itself, perhaps a nice contrarian indicator
because by the time the likes of the Los Angeles Times (see its Sunday
front pager) writes about a bottom, we may have hit one.
At any rate,
I still like at least the Nasdaq’s chances of having already hit bottom and am
strongly inclined to begin nibbling around that speculative edge, mostly in
chips. But still, I will be mostly in
cash and will put very tight stops around any long positions — ready to jump
in feet first if the market begins to declare itself.
As a final
note, the mainstream media right on up to CNBC were mesmerized last week with
the train wreck on the Dow Jones Industrial Average
(
$DJIX |
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place and all. Forget about it.
It’s only 30 lousy stocks and as the Old Large Cap Guard giveth way to
the New Small and Mid Cappers in this new century, the DJIA no longer is a very
good reflection of market health. So
focus on the S&P 500
(
$SPX |
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PowerRating), the Nasdaq
(
$COMP |
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(
$RUT |
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The Macro Data Market
Movers
The
Macroeconomic Calendar
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Potential major market movers in red
The week is likely to be dominated by
two kinds of events. Fed Chairman
Greenspan will do his semiannual dog-and-pony show for the Congress on Wednesday
and Tuesday — with the markets hoping to see a lot less dog and a lot more
pony. Look for Greenspan to provide
strong reassurance that the Fed won’t be raising interest rates any time soon
and only slightly less strong reassurance (whether or not it is true) that the
economy looks poised for at least a moderate recovery.
(Greenspan’s job is to lie to us, because if he lies to us well enough
and business executives and consumers believe him and become more optimistic, his
lie may become truth.)
The other big event will be the first
batch of earnings reports from a number of bellwether companies — from Coke
and IBM to Bank of America. And
WATCH for a lot of heavy action on Friday in the wake of earnings reports from a
gaggle of tech companies — from EMC and Nortel to Microsoft and Sun.
As for the macroeconomic calendar
itself, Tuesday’s news on Industrial Production and Capacity Utilization will
provide a nice snapshot of the supply side of the economy.
Look for an upside surprise.
Then, on
Friday, the Treasury Budget report, which is a generally meaningless on, will
nonetheless focus some media attention on the fact that we are now headed down
the deficit road — for likely the rest of the decade.
Neither the credit or equity markets like this — but perhaps a nice
upside surprise on the tech earnings front will trump any bearish budget
tendencies.
Macroplays of the
Week: Chips Ahoy Redux
Last week’s chip call remains in
play as we continue to try to move from Late Bear to Early Bull in the stock
market cycle.
You may recall in an
earlier column my flagging of Nextel as an eventual telecom takeover prize.
It jumped over 30% this week (OK, it was only a buck on a $3 stock), but
it did so on news of large insider buying by company executives.
So keep your eye on this one.
On the short side, I like the housing
sector in general and Meritage
(
MTH |
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Toll Brothers
(
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in particular. When the market went
down, the housing sector went up, on speculation that the Fed would further
postpone raising interest rates. But now
the sector is weakening on its own.
As for a macroplay on the firefighting
macrowave I promised, I continue to look at Spartan
Motors
(
SPAR |
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News |
PowerRating), which makes chassis for fire trucks.
It’s been on a very strong upward trajectory since 9/11 and is poised
to benefit from the wave of drought-driven fires but it has faltered of late.
This is a stock you could play either long or short, depending on the
near term action. Long with a buy stop if
it goes up above $16.
If you have a favorite macroplay or
stock you would like us to consider in this column, send an e-mail to peter@peternavarro.com
or go directly to https://www.peternavarro.com.
We’d love to hear from you.