Checking With the Gurus: Of Course, Optimistic, but Not So Hays

GuruVision: Special Edition

SAN FRANCISCO -- In response to overwhelming reader demand (OK, that's an exaggeration), here's the latest from Don Hays, of Hays Advisory Group in Nashville:

"The market is now ripe for that last plunge that I have been expecting," Hays wrote this morning.

The report made no mention of last night's Supreme Court ruling, suggesting it was written beforehand. Hays' forecast was made "with sweaty palms," so it's possible the court's decision could inspire a change of heart, but I seriously doubt it. Meanwhile, the "Bush bounce" proved pretty miserly today; the Dow Jones Industrial Average rose 0.2%, but the S&P 500 fell 0.8% and the Nasdaq Composite shed 3.7%.

While Hays eschewed politics, he did address the issue of whether the Comp's recent rally -- roughly 500 points from the intraday low on Nov. 30 to the intraday high Monday -- heralded a new bull phase. His short answer: "No." His long answer:

The upward move so far looks very insignificant on a one-year chart, and if you look at it on an even longer-term chart you can barely make it out. So my advice to you is to not get lost in the wiggles. They usually have a tendency of greatly impacting the emotions, but, as you know, emotions are the biggest killer to an investor.

Wiggle, Wiggle, Little Comp One year of the Comp, with 50-day moving average

"Now is certainly a time to heavily bias your investments on the extreme caution side, as I have been urging since late last year," Hays concluded (tacitly acknowledging he'd missed the blow-off portion of the rally, a cardinal sin to some readers, I know).

GuruVision Special, Part 2: Merrill's Merry Band

Undeterred by the wrongness of her recent bullishness (more on that in a minute), Merrill Lynch chief U.S. investment strategist Christine Callies today upped her recommended equity allocation to 65% from 60%, reducing cash to 5% from 10%. The bond allocation was unchanged at 30%.

Callies cited the apparent resolution of the presidential election and indications the Federal Reserve will adopt a neutral bias at its Dec. 19 meeting. "In addition, a cut in the Fed funds rate is likely in [the first quarter], possibly as early as the January FOMC meeting," she wrote.

To recap her recent predictions:

• Aug. 7 (her first report for Merrill), Callies predicted the S&P 500 would end the year at 1575 on earnings growth of 15%.

• Oct. 4 she suggested bottom calls were "premature" but said investors willing "to start nibbling before the correction is over" should start scaling in, since the Nasdaq had breached 3600.

• Oct. 23, she wrote "the near-panic selloff [Oct. 18] was at least the beginning of the final capitulation," and encouraged "investors [to] use remaining weakness in particular to add to their medium- and long-term equity investment portfolios."

• Nov. 14 she upped her recommended equity allocation to 60% from 55%, writing that "equities are likely to outperform bonds and cash over at least the next three to six months."

More recently, Dec. 4, Callies wrote optimistically about the technology sector and the Comp, which closed at 2615 that day.

Thus, you could argue Callies (who was traveling today and not available for comment) was right to continue to recommend buying as the market fell because eventually she'd get it right, or, at least, get a bounce.

Elsewhere at Merrill, global tech strategist Steve Milunovich yesterday removed Sun Microsystems(SUNW Quote - Cramer on SUNW - Stock Picks) and Pivotal(PVTL Quote - Cramer on PVTL - Stock Picks) from his techfolio, which was launched Oct. 23.

Sun and Pivotal were replaced by Texas Instruments(TXN Quote - Cramer on TXN - Stock Picks) and Avnet(AVT Quote - Cramer on AVT - Stock Picks), which joined remaining original members Adobe(ADBE Quote - Cramer on ADBE - Stock Picks), Cadence Design(CDN Quote - Cramer on CDN - Stock Picks), Cisco(CSCO Quote - Cramer on CSCO - Stock Picks), DST Systems(DST Quote - Cramer on DST - Stock Picks), EMC(EMC Quote - Cramer on EMC - Stock Picks), Nortel(NT Quote - Cramer on NT - Stock Picks), Sanmina(SANM Quote - Cramer on SANM - Stock Picks) and Solectron(SLR Quote - Cramer on SLR - Stock Picks).

From the close on Oct. 23 through Dec. 12, Milunovich's original picks were down an average of 14.4%, led by Sun Micro's 42.9% decline. But the Merrill Lynch Tech 100(MLO Quote - Cramer on MLO - Stock Picks) was down 18.8% in the same time frame, so Milunovich can claim outperformance of his stated benchmark.

Despite being down 37.9% from Oct. 23 through yesterday, Milunovich dubbed Solectron his "top global pick" in a Dec. 4 report, in which he also shined favor on non-techfolio members Convergys(CVG Quote - Cramer on CVG - Stock Picks) (also a Callies' favorite, I'll note), STMicroelectronics(STM Quote - Cramer on STM - Stock Picks) and VeriSign(VRSN Quote - Cramer on VRSN - Stock Picks).

(Of the aforementioned, Merrill has done underwriting for Sun Microsystems, Pivotal, Avnet, Cisco and Solectron.)

You Be the Judge

On Dec. 29, I gave Milunovich grief for seemingly shedding his bullish outlook in midstream. In a recent interview, the strategist explained this "cautious posture" was evident in his original techfolio report of Oct. 23.

Indeed, the report suggested "we may be in the late stages of a tech mania," and recommended underweighting Internet and related services, semis and capital equipment, as well as wireless.

But the report also forecast "tech could have a fourth-quarter rally" and that a bottom "may come in the next few weeks," with overweight recommendations in computer services, software, storage and the supply chain.

Given Milunovich's position, it's probably unreasonable to expect him to be totally bearish, much less when rolling out his new coverage. Still, it seems he was accentuating the positive when the techfolio was rolled out (at least that's how it came across in various interviews) and has more recently accentuated the negative.

But if a strategist's job is to adapt to market reality rather than stick to a given outlook (which is why I've criticized bullish gurus), perhaps I've been too hard on Milunovich.

What do you think?Steve Milunovich is...Appropriately disposed given the realities of his job and the market.A tech bull in bear's clothing.A tech bear in bull's clothing.No better or worse than any other sell-side analyst.