The Taskmaster - TSC
If It's a Bottom, It's Not Going to Stick
Aaron Task
11/30/00 - 07:50 PM EST
Just the Facts, Ma'am
SAN FRANCISCO -- After trading as low as 2523 today, the Nasdaq Composite Index bounced to close down a relatively less-harrowing 4% to 2597.92, completing its worst month -- down 23% -- since October 1987. Similarly, the Dow Jones Industrial Average closed down 2% to 10,414.49 vs. its session low today of 10,292.39. The S&P 500 bounced from its nadir of 1294.90 to close off 2% at 1314.95. The Nasdaq 100 shed 3.7% to 2506.50 but climbed off its intraday low of 2426.41. In New York Stock Exchange activity, 1.5 billion shares traded -- the second-busiest session ever -- while declining stocks bested advancers 9-to-5 (what a way to make a living, huh?). On the Nasdaq, 2.7 billion shares traded -- also its second-heaviest session ever -- with losers outpacing winners by 2-to-1. New 52-week lows bested new highs 219 to 114 in Big Board trading and by a whopping 853 to 48 in over-the-counter activity. In Frankfurt, Germany, St. Louis Federal Reserve Bank President William Poole told reporters, in essence, that the Fed should ease interest rates if the weakening stock market begins to affect the "real economy." Those comments, combined with yet more signs of weakening in the economy via the personal income and consumption numbers, Chicago Purchasing Managers' and initial jobless claims reports, convinced some market players that the Fed is going to ease, and soon.The Anecdote, Please
Meanwhile, reports are starting to come in about layoffs at trading shops, canceled holiday parties and fears that the all-important year-end bonus might not be so robust, if it's forthcoming at all. "There is absolute fear, guys are saying 'it's over' -- their careers, the market," said one Wall Street participant. "If there were no sealed windows, guys would have been jumping out." Elsewhere, trading desks were abuzz with rumors about a big derivatives blow-up -- approaching $1 billion -- at a "major" financial institution. One highly regarded firm was mentioned, but the firm's shares closed well off their session lows, suggesting the rumors were just that.The Conclusions
Predictably, the sources of the aforementioned anecdotes requested anonymity. But the point is that high-volume selloffs, job insecurity on Wall Street, rumors of big institutions facing huge losses, pundits making bold, draconian predictions (forgive me TSCBritish) are the stuff market bottoms are historically made of. Thus, many market participants came to the same conclusion today, although smarter ones hedged themselves (both literally and figuratively). "It's impossible to say this is the bottom, but I wouldn't be surprised if we saw a little bit of a bottom here," said Bob Basel, director of listed trading at Salomon Smith Barney. "It's possible. One day there's definitely going to be a bottom and the data are starting to swing toward where Greenspan is going to have to say something positive about rates." Elsewhere, Wall Street Strategies emailed the following to its clients:"While today's late rally attempt doesn't mean the worst is over, it does mean that buyers are itching and that when the real rebound occurs it could be significant. This market is poised for a recovery -- not necessarily a move to erase all the losses, but to swing the emotional pendulum back to the center of reality."There were others, but you get the gist. However, (always a "however"), there are a few problems with this latest "bottom" talk. First, major averages still ended with big losses, with the Comp at its lowest level since Aug. 12, 1999, and the S&P at a new 52-week low. Also, today's healthy volume levels were no doubt aided by end-of-the-month considerations. The question of whether blue-chip averages will follow the Comp's example or lead the tech-ridden index out of its hell remains unanswerable. Second, what else is Poole (or any other Fed official) going to say other than the Fed will take appropriate action should the economy be negatively affected by the stock market? Greenspan & Co. have repeatedly said they're focused on the potential for tight labor markets to spark inflation, so you can't be assured what they'll do until the employment report a week from tomorrow. Plus, oil remains solidly above $30 a barrel. A change in bias at the Dec. 19 meeting is looking much more likely, but that's still a far cry from an actual ease. Third, rather than exiting the stock market entirely, money continued to rotate within it. Early on, funds flowed into perceived safety in pharmaceuticals, other consumer staples and gold stocks. By day's end it was heading into growth names such as Micromuse (MUSE Quote - Cramer on MUSE - Stock Picks), McData (MCDT Quote - Cramer on MCDT - Stock Picks), BEA Systems (BEAS Quote - Cramer on BEAS - Stock Picks) and Juniper Networks (JNPR Quote - Cramer on JNPR - Stock Picks) (among others). Their gains are simply not what's historically associated with capitulation. Speaking of which -- and finally -- the widely held belief is that all the gurus would have to throw in the towel before the market finds a sustainable bottom. Today, the chief guru herself, Abby Cohen of Goldman Sachs, not only didn't throw in the towel, she twirled it up and snapped it at the backside of the bear market, yet again. Cohen reiterated her 12-month price target for the S&P 500 at 1650 and noted that -- at 35% -- she is now overweight technology stocks for the first time in a year. "Significant cash levels have built in mutual funds and other portfolios," Cohen wrote. "This, in combination with attractive valuation, sets the stage for higher share prices." If Abby J proves right, she'll be remembered as the heroine once again. It might even be enough to make people forget the less-than-stellar results of her more recent prognostications. As for yours truly, I acknowledge that the potential for short-term rallies has always been with us, and recent examples have been ferocious. But I agree with Brett Gallagher, head of U.S equities and deputy chief investment officer at Julius Baer Investment Management, who said that if the market bottomed today, "it's certainly not one that's going to stick." Gallagher, who oversees about $3.5 billion, also said he sees 1800 as "fair value" for the Nasdaq. "Now that momentum is entirely broken, we think approaching those levels is a bit more likely." I question that "fair value" forecast and think he's sounded the death knell for momentum a bit too soon. In Globex trading, Nasdaq 100 futures were recently up 18.50 to 2548.50. But a sense that the momentum guys are alive (if not well) is one reason I agree with Gallagher's no-sustainable-bottom call.