Proud Abby
The big cheese of GuruVille
spoke today and all of Wall Street paid heed. The
Dow Jones Industrial Average rose 1.3%, the
S&P 500 gained 0.6% and the
Nasdaq Composite climbed 0.9% after
Goldman Sachs' Abby Cohen upped her recommended equity allocation to 70% from 65% and reiterated her year-end targets of 1650 for the S&P and 13,000 for the Dow.
It seems likely stocks would have rallied anyway today, the third straight advance for major averages. But Cohen's call certainly proved an additional incentive for many investors to jump onto the bottom bandwagon, even if trading volume wasn't terribly robust.
The 5% increase in recommended equity allocation reversed the drop Cohen made last March, when she encouraged investors to get more defensive.
While the March 2000 call proved timely, it is disingenuous to lavish praise on her for that, as I noted in
RealMoney.com's Columnist Conversation this morning.
As Cohen herself admitted (proudly, it seemed) during an interview on
CNBC, last March she expected the S&P 500 to move "sideways" for the remainder of 2000. Last year, the index fell as much as 17% from its March peak of 1527.46. Just last week, the index came within a hair of falling 20% below that peak, a level many technical analysts consider bear market territory.
Furthermore, for all the accolades Cohen still receives from the mainstream press for that "defensive" call in March, they conveniently forget to mention the following:
On
Sept. 21, 2000 she said worries about the euro, oil and earnings were "overdone" and the market's outlook "bright." On
Oct. 13 she said the S&P was 15% undervalued. On
Nov. 14 she said the S&P was 15% undervalued. On
Nov. 30 she reiterated a 12-month target for the S&P 500 of 1650. On Nov. 14, Cohen also upped her recommended allocation in tech stocks to 35% (market weight at the time). Today, she lowered that recommended allocation to 32%, which now is an overweight, given tech has fallen to about 26% of the S&P 500.
Cohen lowering her actual recommended tech weighting to one that nonetheless is now overweight vs. market weight probably caused some confusion. Perhaps that explains the Comp's relatively subdued rise. Also, there were the pesky warnings from -- most prominently --
Broadcom (BRCM Quote - Cramer on BRCM - Stock Picks) and
JDS Uniphase (JDSU Quote - Cramer on JDSU - Stock Picks), as well as the bizarre and vexing halt on
Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks). (Long
after the bell, Yahoo! confirmed speculation that its first-quarter earnings will not meet expectations and that CEO Tim Koogle will step down.)
Please understand: I'm not out to demonize Cohen, because we're all human. I just don't think the facts support the reverence in which she is still generally held.
Bottom line: Anybody who bought based on her bullish comments on the S&P lost money. Since Sept. 21, the S&P is down 13%. The index is down 8.2% since Oct. 13 and 8.7% since Nov. 14.
Similarly, anyone who increased his or her tech holdings in mid-November based on Cohen's call lost money. Since Nov. 14, the Nasdaq -- which Cohen does not provide forecasts for -- is down 29%, and the
Merrill Lynch Tech 100 (MLO Quote - Cramer on MLO - Stock Picks) -- which I'm almost certain she doesn't forecast -- is off 35%.
Cohen did not return calls seeking comment.
Capitulation Revisited
Cohen's call puts us one step further away from the kind of capitulation I wrote about
last night -- where the bulls get bearish for whatever reason (not necessarily a meltdown). We still haven't seen any hint of that. Quite the opposite, in fact.
The piece generated a lot of email, for which I'm ever grateful.
To readers convinced that capitulation has already occurred, by definition of the Nasdaq's fall from grace, check out an
article today by
TheStreet.com's Justin Lahart. The second half of the story contains information regarding
IBM's (IBM Quote - Cramer on IBM - Stock Picks) trading after the 1987 crash, an instructive tale for those who believe it's folly to sell tech stocks after they've already fallen so much because they "have" to come back.
To those who simply questioned the value of sentiment gauges, I concede they are imperfect. However, the sentiment polls are the best we've got and have proven accurate in the past.
TSC's Helene Meisler
recently noted that bullish sentiment didn't seriously wane during the bear market of the early 1970s until 1974 -- or near the bottom of a two-year decline that took nearly 50% off the Dow.
On the other hand (always, right?), one reader noted that the
Investors Intelligence poll, for one, provides little room for nuance for respondents who might be bullish on one sector and bearish on another. Excellent point.
Additionally, John Bollinger, president of
BollingerBands.com in Manhattan Beach, Calif., recently commented that investment letters were far more important in 1963, when the poll got started.
Because investors now have far more research available -- "indeed, they are virtually drowning in the stuff," he wrote -- "there can exist large gaps between the survey results and the opinion actually held by investors. We think this is currently the case, with advisors being more bullish than investors."
Bollinger -- whose own newsletter is part of the survey -- noted that because most investors are bullish by nature, the more important figure in the
Investors Intelligence poll is the bearish reading. At 33.8% in the most recent survey, bearishness is relatively high, he noted.
In a follow-up interview today, the technician said mantras about the "need" for capitulation of bullish strategists "don't do anybody any service, and cause people to focus on those events rather than the reality of the marketplace."
To Bollinger, the reality remains the same: The majority of stocks are moving higher, and indices such as the
S&P 400 MidCap remain closer to all-time highs than lows. He remains particularly enamored of mid- and small-cap value stocks and recommended the
(VSIIX Quote - Cramer on VSIIX - Stock Picks)Vanguard Small-Cap Value Index fund.
I sense that some readers consider Bollinger another ill-fated bottom picker, because they've confused his call that the average stock had bottomed with a call that the averages had bottomed.
He admitted being wrong in his early expectation that small- and mid-cap growth would lead, but claimed he "never said there would be a turnaround in the big-cap stocks and never said there'd be a turnaround in tech."
I can confirm Bollinger has recommended small- and mid-caps at least since
last June. On
Sept. 29 he reiterated the bullish outlook for mid-caps and suggested the S&P 500 would outperform the Nasdaq going forward. He certainly got the direction right, but his projected ranges for both averages proved overly optimistic.
Aaron Task
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