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The Market Still Hasn't Found What It's Looking For

Aaron Task

SAN FRANCISCO -- Today was one of those days that make you go, "hmm, maybe Bill Fleckenstein was right when the famously bearish hedge fund manager said here recently that it can't be a bottom when everyone is looking for a bottom."

Fleckenstein's message rang louder still today as the Dow Jones Industrial Average fell 1%, the S&P 500 declined 1.3% and the Nasdaq Composite shed 3.1% to 1782.97, yet another new 52-week low. In fact, it's the tech-savaged index's lowest close since Oct. 30, 1998.

A stronger-than-expected National Association of Purchasing Management survey of business activity for March at least partially contributed to the selloff because it makes an intermeeting rate cut by the Federal Reserve less likely. The prices-paid component of the index fell below 50 for the first time in nearly two years, suggesting inflation remains well contained. But the fact that the overall NAPM index has risen for two consecutive months, plus a rise in export orders and decline in inventories last month -- indicating ongoing demand for manufactured products -- dimmed hopes the Fed will take action prior to May 15, at least for now.

Meanwhile, a profit warning from American Express (AXP Quote) and a layoff announcement by DuPont (DD Quote) reminded investors the economic malaise is not a New Economy-only phenomenon.

Then again, tech warnings continued today while chip stocks -- considered the sector's last line of defense -- crumbled; the Philadelphia Stock Exchange Semiconductor Index lost 7.7%. Micron Technology (MU Quote) fell 12.7% after a series of articles questioned the merits of its recent rally.

Finally, traders also were reportedly rattled by President Bush's tough talk on China after the spy plane incident this weekend.

GuruVision: Where Have All the Gurus Gone?

As mentioned in the RealMoney.com Columnist Conversation, Don Hays, of Hays Advisory Group, never said the bottom is firmly in place and that you should start buying hand over fist.

"The indicators are intact, in my opinion, for a new bullish move, but I suspect we probably have a couple more weeks before the new bullish move breaks out into the clear," he reiterated in a report today. But Hays again suggested any rally will be like the one beginning in March 1980, which was followed by "more trouble" in 1981-82. "I do not -- repeat, not -- believe this will be the next big super-cycle bull market."

Hays, a veteran market watcher whose work I have followed particularly closely since his strikingly bearish call back in November, has taken some lumps on his short-term calls more recently. Still, his intermediate-term calls on the market's general direction have been as accurate of late as any guru I've followed.

That said, I'm sure many investors are starting to appreciate the more direct approach of folks like Jim Rohrbach of Investment Models in Orlando, Fla. As described previously, he does not aim to exactly time market tops and bottoms, but to identify them quickly enough to catch the bulk of upswings and miss the worst of downswings.

Rohrbach's timing models either say buy or sell, and have been flashing sell for a while -- since Feb. 9 on the Nasdaq indicator and Feb. 23 on the New York Stock Exchange. They remained so inclined as of this morning.

Rohrbach's models don't leave a whole lot of room for nuance, but it's doubtful his followers mind: Since Feb. 9, the Nasdaq is down 27.8%. Since Feb. 23, the NYSE Composite is down 5.4% and the S&P 500 is off 8%.

"I know this isn't 1974 but it sure reminds me of it," Rohrbach said today via email. "That year I kept saying that the market could not keep going down, but it did until November. That is not a prediction, just an impression. No one knows when this thing will stop going down. We are waiting and watching, not predicting."

Speaking of scary (on a different level), faithful readers will recall the last time Steve Hochberg, co-editor of The Elliott Wave Financial Forecast in Atlanta, was featured here, he predicted the market would continue to fall into a so-called Fibonacci turn window set to begin March 20, and then start rallying.

The newsletter editor foresaw two likely scenarios thereafter: that the market continued to rally through the next major turn window beginning April 24, or that it rallied into a smaller window around April 2-3, suffered a brief pullback and then rallied again into late April.

At least the first part of that latter scenario appears to be unfolding. Whether the second portion emerges remains, of course, to be seen. Still, the recent track record of the Elliott Wave forecasters gives me hope the recent reasons to be bullish call remains intact, despite today's setback. Additionally, the action seems consistent with the preconditions for a so-called Wyckoff spring, as described here last week.

On a more fundamental level, despite constant protestations to the contrary from many, the economy is improving, at least judging by today's NAPM and construction spending reports, as well as recent consumer confidence figures. It's not going to be a V-shaped rebound, but we could be starting the first upswing in what proves to be a W-shaped recovery.

Where Have All the Gurus Gone, Part 2

By accident or design, Jim Cramer's piece today about permabulls Abby Cohen and Joe Battipaglia omitted one of the biggest permabulls of all: Thomas Galvin of Credit Suisse First Boston, who in 2000 even eclipsed Abby J as the "official" spokesperson for the bullish camp.

In a report out today, Galvin noted how the S&P and Nasdaq just completed their fourth-consecutive quarterly declines, during which he was steadfastly bullish, for the first time since 1984. Rather then owning up to his own failings, Galvin had the temerity to suggest "Wall Street economists are underestimating the vitality of Main Street" -- essentially, that everybody else has got it wrong.

"If we can weather the upcoming final two weeks of the earnings preannouncement storm and finally make progress on the credit crunch while keeping stock levels close to or above current levels, this market may never look back!," he wrote (with the included exclamations). "Get bullish!"

Amazing. The inability of strategists such as Galvin to even tone down their optimism -- much less fully capitulate -- is admittedly not a reason to be bullish.

Meanwhile, that preannouncement storm gathered strength after the bell today. With the first quarter completed, many companies that haven't already warned are now brandishing the red flag. Leading (for lack of a better word) tonight's offerings was a stunningly harsh warning from Ariba (ARBA Quote). Shares of the B2B software developer were plummeting in after-hours trading, along with those of its erstwhile merger partner, Agile Software (AGIL Quote).

(For more on GuruVision, check out this primer.)