This Time Really Is Different

Some things never change, or so it seems. However, everything is always in a state of flux.

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Take, for example, such things as General Electric (GE - Cramer's Take - Stockpickr) and Cisco (CSCO - Cramer's Take - Stockpickr) always hitting their well-guided targets. That's become almost more certain than some type of circus event at the opening bell on the New York Stock Exchange. And now, that's no longer the case.

While I'm sure that GE will continue its magic with numbers while still under Jack Welch's command, John Chambers' company missed the mark Tuesday. Welcome to the New World of Reg FD and the inevitable slowdown in the U.S. economy, which is leading to a commensurate decline in the torrid pace of domestic technology investments by corporations.

It's Hard to Let Go

The New Economy is dead! However, multitudes still cling to the belief that this time really is different in the sense of that ill-timed -- and now retired -- Robbie Stephens advertising campaign. The recurring belief in a "new era" is a snare that snatches the ongoing U.S. bull market by the ankles so infrequently it's deemed virtually impossible to end every few generations. And, it's so convincing that it sucks in almost all who have the means (and nowadays even tens of millions who don't), as Americans generally aren't very big on studying history. So, it's apt to take quite some time before it completely unwinds.

It's no wonder that investor sentiment remained as high as it did while the Nasdaq Composite Index was being chopped in half, and it's hardly amazing, although startling and scary, to see how much more bullish folks are right now. Their faith is almost solely based on the abilities and actions of one man; unfortunately, that man has proved to be very fallible time and time again since 1987. If it were as easy as most investors believe it to be to flip a switch and generate trillions of dollars in market value, why not simply use a computer program to replace the Fed?

More to the point, why was Alan Greenspan elevated to the status of a demigod in the first place? This answer is simply a function of an extraordinary bull market and an economic expansion that for all intents and purposes has lasted more than 18 years. The reasons for it are many, but there's little doubt that it turned into a bubble focused on the tech sector. It is over. Perhaps Cisco's miss and flat-to-lower two-quarter revenue growth guidance will mark the date when all doubt was erased. It's certainly possible that it might be longer, should the cold in the U.S. cause the rest of the world to sneeze.

Future of the Market

I happened to see my good friend Ralph Acampora on a Fox News repeat of the "Cavuto Report" this morning. And, while we haven't agreed on the state of the market for most of the past three years, we are in agreement now. Yet, also, it appears that we also remain at odds regarding the market's near-term fate. Acampora said that he had unveiled a new report Tuesday with the message that a new bull market has begun. I'm in complete agreement with him that value will significantly outperform growth for quite some time, and I also think he's right about the long-term prospects for the broader market, if not the major market measures. However, I still believe that a near-term recession cannot be averted, so we part ways on the market's prospects in the intermediate term.

He mentioned the NYSE advance/decline line, which I agree has broken out of its downtrend that began in April 1998 (the beginning of a bear market for most stocks). But I remain wary that another new low in the Naz will sap investor confidence, and a decline in the dollar could deal the blue-chips a severe blow. The Nasdaq's A/D line is still abysmal, and the up/down volume has become heavily skewed to the downside. In any event, my indicators are flashing sell signals for the Nasdaq Composite, Nasdaq 100 and S&P 500, and I don't really care what happens to the cherry-picked 30 stocks in the Dow. It's hardly a useful tool, in my opinion.

Of course, I'm certain that our friend Dick Arms hardly shares my opinion of the Dow; that's what makes a horse race. And, I also noticed that John Bollinger, another highly respected technician and deservedly so, is also a Dow tracker. I've noted with passing fancy the Dow's trouble piercing the 11,000 mark, but don't think it's terribly important. Bollinger, to my surprise, said on CNBC that a move through that level would give the economy an "all clear" signal. We'll see, but it's going to take time to repair what I believe will be a continued decline in consumer confidence. A V-shaped economic recovery doesn't seem likely to me, irrespective of further rate and tax cuts. Unfortunately for many, it looks like that's what the market is pricing in.

If there was a big surprise to me, other than Cisco's missing the bottom line (although they did hit the low end), it was the absence of any dramatic action after the fact and throughout the technology-troubled conference call. Cisco finally touched a new low sometime overnight, but it wasn't until this morning that the Nasdaq 100 March contract was down as much as 50 points. Even JDS Uniphase (JDSU - Cramer's Take - Stockpickr) bounced back quickly from its initial decline before I hit the sack.

Well, I was wrong about trying to flip Cisco Tuesday afternoon, but selling tech stocks into the morning's surprising strength proved to be a good move. Unfortunately, I was too timid to pull the trigger ahead of the big event. What was most telling to me, on another understandably lethargic day, was the weakness in the financials, led by the Bank of America (BAC - Cramer's Take - Stockpickr) downgrade. I remain very wary of the banks and brokers in particular, and I'm not very keen on the whole sector because I think a near-term recession is in the cards.

The Value of Value Stocks

As I've been preaching for more than a year, value stocks are likely to lead the market for a much longer period than most now expect. Obviously, in the near term we're also apt to see the more defensive groups continue to work, but they hardly provide much in the way of value in the intermediate term. Because I believe that the overwhelming consensus of a stronger second half is little more than hope, it's too early to overweight cyclicals. But many of the energy stocks look attractive technically, with Diamond Offshore (DO - Cramer's Take - Stockpickr) and Smith International (SII - Cramer's Take - Stockpickr) among my favorites. It will be interesting to see how crude behaves after the hardly surprising outcome of the Israeli election.

Traders should continue to sell rally attempts on the Naz, as the NDX appears to have put in a rounded top. "Chicken tech" stocks were solid Tuesday, but they're hardly a place to hide. Government and agency bonds still look attractive relative to cash, but there's nothing wrong with holding a slug of greenbacks in reserve. Well-positioned investors should sit chilly, with a decidedly underweight position in tech -- and there the focus should also remain on value.

This time really is different. The New Economy is just another chapter in the history of market manias. Fortunately, the longer-term outlook for investors is still very bright. But you have to be alive to take advantage of opportunities when blood is running on the Street of Dreams.