Here’s What Would Change My Mind This Week

• August 25, 2003
• Peter Navarro

Market Trend: Topping pattern

Market Outlook: High probability of a significant pullback

Sector Watch: Real Estate and Financials, Tech (-)

Peter’s Pick: Long
(
IRSN |
Quote |
Chart |
News |
PowerRating)). Short
(
KKD |
Quote |
Chart |
News |
PowerRating) and
(
DKS |
Quote |
Chart |
News |
PowerRating)

Media Watch: Barron’s touts
(
PEP |
Quote |
Chart |
News |
PowerRating). Short that puppy!

The
Broad Market Outlook: Bearish

Two weeks ago, we forecast a
small market bounce and for two weeks minus a day, that’s exactly what we got. 
Friday’s reversal sets the stage, however, for what will either be a brief
intermission in the “new bull market” or the third and final act of a bear
market rally.  You don’t necessarily have to take sides with the bulls and the
bears to get the heck out of the way — or to jump over to the short side.  All
you have to know is that the next few weeks — and possibly months — are likely
to be rocky for the long boarders. 

Why the pessimism?  On a technical basis, just take a look at the latest “Top
100” market leaders published by Investor’s Business Daily.  More than 80% of
these high fliers are showing significant signs of technical deterioration.  In
addition, the financial sector, which now makes up 20% of the S&P 500 action has
begun to suffer from an outward-bound sector rotation in reaction to rising
interest rates — and the momentum downward can only build.

On the fundamental front, there are all of the problems we’ve been tossing out
at you in this column for lo these many months.  Soaring budget and trade
deficits, the hollowing out of our manufacturing base by the Chinese, the
hollowing out of our software and data processing sector by India, high oil
prices, the California budget conflagration, a profitless and jobless recovery,
and so on.

Bottom Line:
We enter the week bearish or (if cash rather than shorting is your bag)
neutral.  And the only thing that will change our mind is some boffo
reports {SEE BELOW).

The Week’s Macro Data Market Movers:

The
Macroeconomic Calendar

* Potential major market movers in red

 

The housing sector should show little or no sign of cooling off but insiders
now think it may be the final push before higher mortgage rates take the bloom
off the rose. Look for high volatility in the sector, with mortgage
applications perhaps of most interest.

Thursday’s and Friday’s one-two-three-four punch of a possible higher-than-expected GDP and Chicago PMI and lower-than-expected jobless claims and mass
layoffs represent the market’s best hope to avoid a down week.

Up
— Stocks when you look at them standing on your head

Down
— Real Estate/Mortgage Finance, and Technology

Media
Watch:
Barron’s
touts Pepsi

One of the hazards of limiting one’s
analytical approach to a fundamental analysis of the stock is that you can be
completely oblivious to a significant technical deterioration. Enter stage left
out Robin Goldwyn Blumenthal and her


Barron’s tout of
Pepsi
(
PEP |
Quote |
Chart |
News |
PowerRating) based on low valuations. Yeah, maybe.  But this puppy looks a lot
more like a short than a long right now to any respectable technical analyst. 
If it’s really a good play, why not let it fall (a lot) further (it’s pretty
near its 52-week high as it is) and buy it even cheaper? 

Peter’s Picks:

A drumroll please for last week’s OPTV
pick, which picked up about a third in value. To hold or hold not, you might
ask? Trader’s choice.

As for this week, here’s a potpourri of long and
short ideas. The long (penny) stock of the week is As for this week, here’s a potpourri of long and short ideas. The long (penny)
stock of the week is Irvine Sensors

(
IRSN |
Quote |
Chart |
News |
PowerRating). It’s
got a new line of stacked memory products and its technicals are firming up nicely.
On the short side, a high-risk play is to dunk the donut,
Krispy Kreme
(
KKD |
Quote |
Chart |
News |
PowerRating). Or even more risky,
jump over the cliff with Dick’s Sporting Goods
(
DKS |
Quote |
Chart |
News |
PowerRating), with the risk here that
it has already lurched down about 5 points in a couple of days and might get a
dead cat bounce.  But hey, there’s no big profit margins in sporting goods —
although Dick’s dirty little earnings secret is that it deals direct with
Chinese distributors and is using the savings from avoiding any middlemen to
boost its margins. BUT that can’t last as competitors figure it out.

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.