Outside Markets Get Inside Shot - TheStreet

Editor's Note: Bill Fleckenstein's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published April 30 on RealMoney.







S&P 500



Nasdaq Composite



Nasdaq 100



Russell 2000



Semiconductor Index (SOX)



Bank Index



Amex Gold Bugs Index



Dow Transports



Dow Utilities



NYSE advance-decline



Nikkei 225



10-year Treasury Bond



Mr. and Mrs. Estimates

: Shortly after opening, the market continued the same weak action of the past seven or eight sessions, promptly selling off after an initial little push to the upside. But just as the market was starting to really sag, economic data released at 10 o'clock Eastern time prompted a straight-up move in the S&P futures of about 1%, and a move of about twice that size in the Nasdaq futures. Turning the tape from sloppy to bright-green across the board were the Chicago ISM number, which only "missed the estimate slightly," and the consumer confidence number, which beat the estimate pretty handily and saw last month's version revised upward.

Crimson Canary in a Coalmine: In chip land, hope for the Micron (MU) - Get Report/Hynix union went splat when Hynix's board nixed the deal. On the back of that news, the mighty, mighty Micron enjoyed the distinction of being the only stock to remain red in a sea of green in the early going, down about a buck. (By the end of the day, Micron had come totally unstuck, down over 10% on pretty chunky volume.)

Reveille for an Unraveling: Regular readers know that I never expected this deal to get done, and that it would be a disaster in any case. Whether or not they manage to salvage it in any form (which I still doubt), there's no way the arrangement could ever work. The creditors, union workers, and the South Korean government all have different agendas, and at the end of the day, there's just too much capacity in the DRAM (dynamic random access memory) market, which is a terrible business to begin with. For those keeping score at home, DRAM prices last night broke $3, trading down to $2.90. I see no reason to expect anything other than pressure in the DRAM market, given the excess capacity and the state of PC demand. (I might add that I speak without bias, because I am not short Micron at this particular moment in time.) So, anyone who owns the stock other than for a trade is just plain silly.

Thirtieth of April Melee

: And that brings us back to the revelers at the casino, for whom Micron's weakness was no excuse to abstain from the SOX. That index was up 3% in the early-morning melee, on behalf of their efforts. Of course, we must remember that this is the last day of the month, the most fundamentally correct time to buy stocks, other than, of course, the end of the quarter or the end of the year.

Free-Range Bull

: After our initial thrust up on the back of the economic statistics, the market flopped and chopped for about an hour before surging again to hit its highs a couple of hours into the day. For the balance of the time, it flopped and chopped around those highs, with no further upside progress. Then, with about 45 minutes to go, there was a small selloff, but the market still finished in about the top third of its range.

Big Blue Hews to Red

: Today's action was somewhat interesting, with many stocks that have been controversial or experienced problems seeing big moves to the upside. To pick a couple of chip stocks, for example,

Genesis Microchip


was up 15%, as was




Also, most of the financials caught a bit of a bounce. In fact, the bank stock index was up 1.5%, just slightly lagging the SOX, which was up about 2%. Of course, that index was held back by Micron. In tech land, basically everything had a bit of a green hue (with


(IBM) - Get Report



(ORCL) - Get Report

the major big-tech exceptions). Whether that is solely attributable to end-of-the-month markup or the harbinger of a bounce, I guess maybe we'll have a better idea in the next day or so.

Morsels from Mamis

: Away from stocks, the metals were under quite a bit of pressure today, with silver down 2% and gold down 1%. Fixed income was slightly firmer, and the dollar was a little bit stronger against both the yen and the euro. Regarding some of these outside markets, I thought I might devote a bit more time today to some thoughts about Japan, gold, and the dollar. Justin Mamis made some pretty worthwhile comments on each of those subjects in his weekly piece, and I thought them worth sharing, both for their factual content and useful insight into the psychology of markets in general.

Sea Change from Chump Change

: Starting with the dollar, he said, "Because there may be no apparent 'reason' for this change in the trend toward the euro, anxieties about a weakening dollar are not likely to develop for quite some time; multinational corporations, as is their habit, will be very slow to react. But if this change in trend holds -- and support appears to be quite firm -- a weakening dollar may prove to be

the unexpected problem

for US equities." At some point, when it hits the skids, the result will be problems not just for the equity market but for the fixed-income market as well.

Reflection in a Bottomless Pool

: On to the Nikkei, the market that I have watched with some interest for the last few months. I had considered perhaps buying Japanese stocks, but I decided against this after witnessing a couple of the "fiddles" that occurred near the end of its fiscal year on March 31. That said, the horrible psychology that we see in Japan is akin to the loathing that we see at market bottoms. Of course, this does not guarantee a bottom -- a distinction that is completely lost on the clueless cheerleaders on Bubblevision -- but nevertheless, the psychology in Japan is worth studying, if only as a standard against gauging what goes on here.

No Objection to the Abject

: If Japan hasn't bottomed after witnessing the type of negativity that they have seen, how can we possibly have a bottom here, given the optimism that people still maintain? That would be the point I'm trying to make. Justin notes (and, according to how he looks at the tea leaves, he's sort of friendly to the Japanese market), "None of this is to say that a spectacular, or even a considerable bull market is under way, only that the Nikkei's underlying decade-long, long-term trend has changed from a series of failures to what promises to be a series of successes. (The reason


bottom is different from those apparent bottoms and ultimate failures during the past decade is that this bottom has come not on enthusiastic buying that the worst was over but on the deepest, darkest, most depressing news -- and consequent consensus denial of any hope)."

Bear Flies in the Ointment

: And that's exactly the point. The psychology there was about as black as it could be. Of course, that doesn't mean it can't get blacker, and prices can't get cheaper. One fear I have about Japan is what happens over there when things really get nasty over here, as I suspect they will. Nevertheless, I would again say that the psychological contrast appears to be a useful bellwether.

Tech Traders Go Gold-Slumming

: Finally, Justin weighs in on the subject of gold: "Getting persistent in its rise, so much so that it has attracted increasing attention -- they even mention the word on


now, more often than they use the word (ssh) 'bear.' Last week's move to a higher high for bullion across a closely watched $305 brought out some profit taking ... an understandable pattern, wherein traders who find themselves with winners in stocks they are neither comfortable with nor long-term interested in (tech love affairs taking precedence) take advantage of such enthusiasm to cash in. They are welcome to; disbelief, with traders hastening to cash in, is a sign of a long-term trend still relatively early in its move."

Panning for a Pounce

: That doesn't mean we can't have setbacks in gold. A review of the recent Commitment of Traders report released by the CFTC shows that we could see something nasty anytime now. If the buying was sloppy enough recently, the setback will be uglier, although it should be noted that the last setback in gold, when it peeked under $300, didn't last very long. Meantime, if a decent setback occurs, and if an obvious opportunity presents itself, I'll try to point it out for readers who might like to seize the chance to gain some exposure to gold or gold shares.

Cheap and Comely

: In any case, I hope that the peek into psychology afforded by Justin's work will be helpful to people trying to understand what the mindset is when opportunities present themselves, as opposed to all the pseudo-opportunities that are constantly being proclaimed on Bubblevision. (Not that I know firsthand, because I never watch it, but I continually get emails from people who do.) I would also point out that in addition to the bleak psychology surrounding real buying opportunities, cheap prices also abound, thereby limiting risk. Today, I have focused more on psychology than price. But in the end, I believe that buying at attractive prices is a key determinant to a successful investment.

Music from Silenced Bells and Whistles

: The bottom line is, what occurs at market bottoms is not enthusiasm and immediate recognition, but rather apathy, hatred, and fear. Just look at what gold was like when it bottomed out at $250/$260. How many people were talking about it? Only now, with gold surpassing the $300 level, are people starting to consider that maybe the bear market is over and a bull market has begun. That's the way it really works. No startling epiphany or instant gratification when it's really time to step up to bat for a major bull move.

William Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund based in Seattle. Outside contributing columnists for TheStreet.com and RealMoney, including Mr. Fleckenstein, may, from time to time, write about securities in which they have a position. In such cases, appropriate disclosure is made. At time of publication, Fleckenstein Capital had no positions in stocks mentioned, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security. The views and opinions expressed in Mr. Fleckenstein's columns are his own and not necessarily those of TheStreet.com. While Mr. Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to