Hmmmm...repeat of April?!?!

By Duru

October 3, 2000



Hmmmm.... me-thinks a repeat of March is the works? I am no reporter, but I could not help but write this tiny piece of my mind on the markets... I am sending this out to you prospective (or "baby") investors as a warning before thinking things look "cheap" right now in the market. First, keep in mind the lofty levels most things are falling from. The Nasdaq is STILL 50% higher from the beginning of 1999 I think.

More alarming is that, just as we saw in April, good news is now starting to be ignored, bad news is sending stocks into major, accelerated dives. Of course, this presents great buying opportunities. But I find it difficult to say that the buying time is now! (I have my own "risk" list of things I am watching out for though). Just as what happened in May, look for the capitulation trading day when ALL sellers finally dump all their holdings...desparate to dump at any cost.

Two examples: COVD makes a major milestone and stock gets pummelled another 25% to an all-time low. TIBX has a break-out earnings report and is upbeat for the future. The stock moves a bit upward for a while, but has now continued the slide it was on before earnings. The trigger of this slide was a RUMOR (3 weeks ago I believe) that sales to CISCO were in trouble. I am sure there are more examples, but I have not found them yet. This can indicate the market's sentiment that stocks are over-valued. However, if we are indeed seeing a repeat, then winners will come out of this bloodbath....eventually. Financial Darwinism has been killing off the weak all year causing more and more money to go to fewer and fewer "quality" stocks. And these few stocks will conitnue to get a premium. The trouble is that most of the bellweathers are falling off now, and it is hard to see or know what stocks get ANY confidence from the market.

Finally, check out the huge portfolio of excuses companies are using to explain lackluster results: the declining Euro, high oil prices, seasonal slowdown in advertising spending, increasing failure rate of dot-coms (and the resultant spending slowdown), the tightening of credit, and the lack of funding available from the capital markets. Yikes! Can the bears sing now or what?! And all this before the greatest spending season of the year.

In case you are wondering what I am doing, I started building up my cash position 6 weeks ago just in case something like this happened (while at the same time dipping into some "risk" buys, some of which paid off big, most fizzled). I am drooling at the opportunity to make plays in stuff I have watched for a long time, but scared to death I still have no idea what I am doing. They say that the average investor buys high, sells low, and typically waits before doing either. That is, wait so long that you buy long after the fundamentals have turned sour in a roaring sector, and then panic after the crash. Thus, the benefit of being a contrarian in a volatile market and also buying and holding (quality stocks of course). I have only done tiny amounts of selling at a loss (motivated by taxes), but I sure have been a bit guilty!!!

Be careful out there!