Big Rally? Not Until Investors Are Scared Witless and Stop Speculating

Somebody's Been Sleeping in My Bed

Following a refreshingly upbeat tone in the weekend financial press, the Dow Jones Industrial Average rose 0.9% today, while the S&P 500 gained 0.6% and the Nasdaq Composite climbed 1.2%. Inclement weather, or really the threat of it, subdued trading, but the session boosted hopes that a sustainable rally is unfolding.

Previous GuruVisions

C'mon Greenspan, Do the Locomotion...

To Heck With Tech! Some Key Gurus Staying Away Short Term

Turning on Tech: Some Gurus Cast a Bearish Glance at Tech Stocks

Perfect Timing? Yes, You Can Time This Market, Says Guru

Market Bullheadedly Ignores Missed Earnings, Salivates for Rate Cut

This Rosencrans Has Thorns: Market Blooms, but Strategist Offers Warning

And the Winner Is...

Particularly uplifting to optimists was that separate warnings from LSI Logic (LSI Quote), Vitesse Semiconductor (VTSS Quote) and Cypress Semiconductor (CY Quote) failed to deter buying in general, or of chipmakers in particular. The Philadelphia Stock Exchange Semiconductor Index rose 5.2%, and each of the three offenders closed higher.

On the other hand, today's action and all the newfound rally talk means "people have learned nothing in the past year," according to Bill Fleckenstein, of Fleckenstein Capital in Seattle. "You can't get a bottom when everyday people try to buy the SOX. The bottom is when you're scared to death and puke 'em out."

As you might have guessed -- and as I noted late Friday in RealMoney.com's Columnist Conversation -- Fleckenstein, who runs $50 million but declined to discuss performance, has not joined the ranks of former bears who have recently become more optimistic, including Don Hays, Doug Kass, Richard Russell and Steve Leuthold. Instead, he believes many stocks remain wildly overvalued and that many investors aren't investing -- they're simply "chasing pieces of paper."

"Even guys who didn't believe in the mania are looking for a big rally, but I'm not going to play that game," Fleckenstein said. "Everyone has got the same trade on -- they want to own [stocks] because they act well in the face of bad news or because Alan [Greenspan] is going to save the day. Maybe they'll get it right, but it doesn't seem likely."

He remains short a host of names, notably chip and equipment stocks such as Lattice (LSCC Quote), Xilinx (XLNX Quote) (which warned after the close), Altera (ALTR Quote), Intel (INTC Quote), Micron (MU Quote), KLA-Tencor (KLAC Quote), Applied Materials (AMAT Quote) and Novellus Systems (NVLS Quote).

He's also still short tech behemoths IBM (IBM Quote), Oracle (ORCL Quote), Dell (DELL Quote) and Cisco (CSCO Quote).

Fleckenstein conceded there was an opportunity-cost to his going bearish on technology long before it was fashionable (or profitable). But he also noted (correctly) that many of his concerns -- notably the oversaturation in the PC industry -- have proven accurate, and frets most investors weren't nimble enough to be long and then get out (or get short) at the critical junctures.

Maybe those expecting a rally now will be justified and "I'll get chased out," he mused. "But I'll be bullish when stocks represent value, and they don't represent value. It is still a Ponzi scheme."

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Editor's Note: Tune in Tuesday morning for a special as the Taskmaster tackles the prickly issue of inflation, stagflation and recession and outlines how an investor can combat that three-headed beast.