Don't Start the Party Just Yet

I hate to write and run, but circumstances beyond my control dictate that Wednesday morning's comments are short, if not sweet or pithy. (OK, neither my wife nor I heard the alarm after smacking the snooze bar three times.) In any event, I've kept my ranting to a minimum. There's little new that I have to say, and you're likely to hear much of what I've written anyway from several market "gurus" today.

It seems that more and more money managers are on the verge of suffering from a severe case of lag-itis -- the fear of lagging benchmarks and/or competitors -- right from the get-go. Only six trading days are left before January is in the history books. With money now flowing freely into aggressive funds and the market continuing to ignore bad news and celebrating anything that smacks of good news, I almost sensed the beginning of a buying panic into the close Tuesday.

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It reminds me somewhat of October 1999, which was the start of the Nasdaq Composite Index's final upside blow-off move, an extraordinary one that was also pooh-poohed by even the most bullish pundits. It seems like only yesterday when the beginning of a manic run was met by talk of the need for "backing and filling" and that "the market was ahead of itself" (whatever that means). And Y2K , as I recall, was also seen as a reason for caution back when folks were buying the New Economy gibberish hook, line and sinker.

Well, it looks as if last year's double-whacking has already been forgotten, and Mr. Market will have to deliver another body slam to make it clear that there is no free lunch and that the emperor really is wearing his birthday suit. After enjoying almost two decades of an incredible secular bull market and an amazing run from late '94, when the Republicans took control of Congress, it's hard to make adjustments on the fly. Greed has again beaten back fear after the Nasdaq suffered the biggest decline ever in a major market measure. So, we're apt to see some pullbacks, but as was the case heading into last year, they'll probably be shallow enough to disappoint many folks looking to get in on weakness.

The risk to investors, once again, will be to succumb to irrational exuberance as the market moves higher and to get caught taking too much risk at exactly the wrong time. The time for more conservative folks to put cash to work began last month, and investors should continue to lean heavily toward absolute values without paying much attention to the relative value trap. Those stocks are hardly big, defensive blue-chips; they're primarily small- and mid-cap names that have been and are likely to continue generating solid growth, even in a more difficult economic environment. Concerns about the "R" word and sharply higher stock prices are likely to sink the market before the first-quarter earnings season arrives. And yes, I continue to believe that a near-term recession is in the cards.

With earnings news in techland skewed to the plus side, the market will likely move higher this morning. And it's hard to imagine that Alan Greenspan will serve up anything to roil the market today. The S&P 500 index, the Comp and the Nasdaq 100 index all sport 20- and 50-day simple moving averages that have crossed and are pointing northward. Momentum indicators remain favorable, and we're coming off one of the most long-term oversold readings of the past 20 years. Still, skepticism abounds as most of Wall Street's finest are still licking last year's wounds. Upgrades will come, even though analysts have been right about the lousy fundamentals, if not about the timing of their calls.

Traders should buy modest pullbacks, but early strength this morning should also be used to pocket some cash. Investors, on the other hand, should remain patient, as I believe a retest of the lows will occur within the next six to eight weeks or so. Maybe the third time is a charm, but another demolition derby on the Street of Dreams is apt to keep investors away in droves when it comes. And it'll take much more time than a few months to get an overly indebted public to get interested in the market again.

My target remains 3450 on the Comp, but I'll bump the number on the SPX modestly to 1450 from 1425. Enjoy the ride, but be very wary of gift horses. The market is bound and determined to humble all before the altar of hubris and easy money.

In the meantime, I'm off to sunny Florida for some much-need R&R. I'll be back Wednesday morning, rested and raring to go. Good luck and go Big Blue. The Giants will finally get some respect, as long as they don't go back into an offensive shell.