A Very Pivotal Week

  • October 14, 2002
  • Peter Navarro


Market Trend: Down



Market Outlook: Skeptically
Neutral

Sectors Long: None

Sectors Short: None

Media Watch:  CGNX, TER

Macroplay of the Week: Ride
the Market Indices

Portfolio bias: Cash or Hedged


The Broad Market Outlook:
Your Guess is as Good as Ours

If you’ve been reading this column, you know that most weeks we have a very clear
vision of which way the market is headed and we speculate accordingly — with the
odds clearly in our favor.  In pivotal weeks like this one in which the
market could truly go either way, doing anything other than sitting in cash or a
fully-hedged portfolio is much more like reckless gambling — with the odds
50-50 at best.

As to
why this week is likely to be so pivotal, it’s all about the ongoing battle
between the “Technical Bulls” and the “Macro Fundamental Bears.” The T-Bulls
see the market as oversold and bouncing off strong levels of support. They
argue that once the market begins moving upwards, a combination of fearful short
coverers and fearless bottom hunters will propel the rally.  And note, they
care not whether this is a 4-week rally like the last one or the real,
multi-year bullish deal. The important thing is to jump on
NOW and ride it for
as long as possible.

As for
the Macro Bears, there is little in the way of news to inspire any strong belief
that the good times are about to roll again.  In even the best case scenario,
we will get only modest growth of 2% to 3% at a time in the business cycle where we
typically get a 4% to 5% pop.   And in the worst-case scenario, we get the
dreaded double dip.

As for
why the macro news is so glum, we counted the ways in last week’s column, but
they include: a tapped-out consumer withering on the vine of war uncertainty,
ostrich business executives who refuse to ramp up capital expenditures, high oil
prices, the dampening effects of global terrorism, budget crises (and therefore
reduced spending) around the state capitols of the country, and the longer term
specter of budget crises.  And no — all of this is not fully priced into the
market — or so it may be argued.

So who
wins this week — The T-Bulls or Macro Bears? Who
knows??? What we
do know is that it could go either way, and we will be ready to “ride the train
in the direction its going” once we get the right signals.

What we also know is that IF
this latest rally fades, it will truly be a heartbreaker — for all that remains
holding up this market is the most fragile of hearts. The likely result of another failed rally could well be another crash for the
October record books that could take the Nasdaq below 1000 and the Dow below
7,000. 

Lastly,
we know that even if the rally takes off, it will be one to treat with kid
gloves as we are still in a secular bear market.  You will understand this point
well, by the way, if you didn’t cash out quick enough at the end of the July
rally as we advised and wound up giving it all back.


The Week’s Macro Data
Market Movers: Black Thursday???

The Macroeconomic
Calendar


DAY


EVENT

Monday

  • Holiday


Tuesday

  • Chain Store Sales
    Snapshot

  • Business inventories


Wednesday

  • Mortgage Applications

  • NAHB Housing Market
    Index


Thursday


  • Industrial Production/Capacity
    Utilization


  • Housing starts


  • Jobless Claims


Friday

  • CPI

  • Trade Report

  • Treasury Budget

* Potential major
market movers in red

The market is more or less on its
“corporate earnings reports” own this week as there is no major macroeconomic
data coming out. The closest we will get to a mover will be the Industrial
Production/Capacity Utilization numbers on Thursday. The August numbers were
unexpectedly weak and showed the first decline in seven months. The consensus for
September’s number is a .1% gain but if that falls well below it as it did the
previous month, the market could move sharply lower on double dip fears.  Note
also that housing starts fly on Thursday and that housing sector stocks are
particularly susceptible to this.  Check out how the likes of
(
RYL |
Quote |
Chart |
News |
PowerRating),
(
TOL |
Quote |
Chart |
News |
PowerRating),
(
CTX |
Quote |
Chart |
News |
PowerRating), and
(
BZH |
Quote |
Chart |
News |
PowerRating) react and it will give you a good read on whether any bad or good news will
spread to the broader market.


Source: Economy.com


Media Watch: The Barron’s
Bounce

Look for a big gap up on Cognex
(
CGNX |
Quote |
Chart |
News |
PowerRating) on a
favorable Barron’s story.  It just completed a triple top breakout anyway and
may be poised for move. The technicals actually look encouraging — which is
frequently not the case for a Barron’s tout in these times. Teradyne
(
TER |
Quote |
Chart |
News |
PowerRating) may also
get a Barron’s pop.


Peter’s Pick: Counting My
Cash, Doing My Homework

I will wait
for this pivotal week to declare itself and speculate on the broad market
indices accordingly. This is not a time to mess with either company or
individual sector risk as any moves will be very broad-based.  In the meantime,
I will continue to do my research, looking for the next companies to lead — and
studiously avoiding the last bull market’s champions. On that note, if your
broker calls you and tells you Lucent or Cisco is now a bargain, hang up and
give his name and address to Eliot Spitzer.

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.  Â