SAN FRANCISCO -- "Bottom!," they declared Oct. 13. "Bottom!, they cried Oct. 18.
"And a triple!,"
today after stocks mounted an impressive, impossible, almost incomprehensible recovery. (I could have added
Sept. 21 to the list of bottoms, but
never said, "Joker, joker and a
" on the classic game show.)
Once as low as 10,265.06, the
Dow Jones Industrial Average
recovered to close up 0.5% to 10,380.12. The
finished off a fraction at 1364.44 after trading as low as 1337.94, while the
closed up 1.3% at 3272.18 vs. its intraday low of 3081.36.
More important than the major averages (because it's what the pros look at), the
closed up 1.9% to 3167.14 after trading as low as 2956.20.
The NDX action marks a true bottom (at long last), according to Scott Bleier, chief investment strategist at
. This one is for real, he said, because the index suffered a "marginal break" of its Oct. 18 low of 2982, which "scared the
crap out of everybody" and then recovered on "a big slug of volume."
Bleier, a frequent
bottom picker in recent weeks, made an important distinction between a bottom and a V-bottom, which he does not expect to emerge. Even so, the strategist declared today's session "the most gut-wrenching, heart-stopping" of the year with "more swings of emotion than any sporting event you'll ever see."
fans might disagree. But while I agonized as the
disintegrated against the hated
Monday night, I'll give Bleier his due on that one.
His call, however, is another matter.
Having questioned the previous bottoms (you should've seen the interrogation room afterwards), I know it's testing luck to do so again. The weaker-than-expected
employment cost index
didn't appear to directly spur today's rebound, but it does support the
productivity story. Having cautioned about fundamentals in the past, I can't ignore them when they enhance a bullish view. (Now let's see how tomorrow's
and consumer sentiment numbers look, and if the euro can mount a serious recovery.)
Bottom line: If you're an aggressive trader with a short-term horizon, you should be encouraged. For risk-averse traders, wait until we break above the upper end of the Comp's 3000 to 3500 trading range before getting long(er). Despite all the hysterics, we're still smack in the middle of that range.
Those with longer horizons (a.k.a., investors), consider the following tales -- one anecdotal, one empirical -- as to why you still can't be complacent about the bottom.
First, the anecdote. A source who runs about $40 million in managed accounts (his name isn't important for this exercise) emailed the following today, near the market's lows:
I am finding individuals remarkably calm about the market, and most really don't worry about it too much, hopefully realizing that I do enough worrying for everyone. Man, this is tough, but to coin an old phrase, this too shall pass.
In the resulting exchange, he challenged my contention that this kind of
attitude among investors is precisely the problem. He argued people are comfortable investing because of socio-economic forces such as the death of Communism and expansion of free trade (even if they're not conscious that that's why they're comfortable).
Can't argue with that. But I stick to a belief that there still hasn't been enough fear, worry, and/or panic to signify a lasting bottom has been reached -- a view the numbers bear out.
For all of the drama, there was less worry among investors today than last week as measured by put buying, notes
, senior analyst at
Arnhold and S. Bleichroeder
contributor). Indeed, the
Chicago Board Options Exchange's
put/call ratio soared above the 1.00 mark on Oct. 18 before closing at .90. Today, it rose as high as 0.61 (vs. a low of 0.45) before closing at 0.60.
I'd called Roque to further explore an intriguing point he'd made in a recent
column , which I urge you to read.
The essence of Roque's piece is that while most observers focus on tech vs. non-, what's really transpiring is a more fundamental shift from outperformance by growth to outperformance by value (see his column for the details).
"We expect growth
stocks to bounce -- they're so oversold -- but think it's a bounce in a downtrend," he said. "It seems to me the burden of proof is now on the New Economy stocks because if they can suffer this much damage in an economy growing at a good rate, we need to look at them like every other sector: It works until it doesn't work."
Translation: There's no New Economy and tech stocks are subject to the same rules and restrictions as everything else.
If you're not already, that's something to think about -- the main thing this column tries to deliver (along with an occasional smile).
Tales From the Great White North
Oct. 18 I wrote the bottom couldn't be assured until "bulletproof" stocks such as
-- down 4.4% today to $190.12 after trading as low as $159.62 -- received the same "comeuppance" as other once-beloved groups have sustained this year. (FYI, Juniper closed at $213.875 on Oct. 18.)
In reaction, several readers emailed to defend Juniper. That same evening, another reader, a trader based in Toronto, emailed the following: "We are gaming the short side of your nose bleeders. We are also waiting for
, the great Canadian, along with
Research In Motion
, to crack."
The trader, who requested anonymity, was short Nortel partially because he expected the
Toronto Stock Exchange
to rebalance, given Nortel's huge weighting in the
. He certainly got the right direction, even if for the wrong reason.
Yesterday, there was a lot of "fear and loathing" among Canadian investors, who've come to revere Nortel, he said. "It's like
Nortel CEO John Roth ran over everyone's dog and didn't stop to say 'sorry'. Like it was going to go up forever..."
, I replied, thinking of the many once untouchable U.S. tech names that have fallen from grace in 2000.
Given his prescient call on NT, et al, I asked the source his current recommendations.
"Sell into the strength and buy our banks," he replied, recommending
Bank of Montreal
Royal Bank of Canada
The trader also recommended natural-gas plays such as
Gulf Canada Resources
As for the aforementioned tech plays, he was still short Nortel, Research in Motion and JDSU this morning, having placed additional bets against
After the close, the trader said he'd covered some of those positions, including JDSU.
Smooth move, because JDSU shares soared 16.1% to $82.44 in after-hours trading. The company reported better-than-expected earnings and revenue, and gave glowing forward guidance in its conference call.
The trader predicts a "fun battle" in the stock tomorrow, noting a lot of funds that have suffered in the optical-networking stocks this week might be looking to "lighten the load" if the stock opens up big.
For the record, he's still bearish on JDSU, wondering "how a slowdown that whacked everybody else in the space won't affect them." But he is prepared to "ride a bull if they want it higher in the interim."
Short-term dogmatism has no place in this market -- in case you hadn't noticed.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.