Three Cheers for Bloomberg TV! While CNBC prattles on about market bottoms and analyst du jour's bullish calls, Bloomberg was hammering analysts at every opportunity on their terrible performance in 2001. The theme, correctly pointed out by Bloomberg, was that EVERY major brokerage analyst was wrong by a long shot. They stopped short of calling them criminals, but certainly took them to task for their putting forth horse puckey as though it were suitable "advice". At the very least, Bloomberg pointed out that analysts are extremely fallible and could actually put their pants on backwards with the lights ON.
UBS Warburg's chief analyst and number one-rated analyst for 2000 called for a 27% increase on the S&P this year. Goldman's Abbey Joseph Cohen, top analyst in 1998 and 1999 called for a 25% S&P increase this year. The average of all top firm analysts was for +21%. Actual performance? Negative 13% to date. Not one of them called for a loss.
Still, the same group of fortunetellers calls for 10% gains on the S&P next year - this while P/E ratios have never been higher (at 37), even at the height of the bubble in March of 2000 (29). Those P/E numbers aren't made up. They come from Barron's calculations. Analyst projections thus imply a forward P/E target of 40.7 on the S&P IF (big IF) profits remain the same as now throughout 2002. My personal bet is that profits will fall further precisely because analysts, almost without exception, think they will rise. Anybody still want to bet with the herd? Wherever the analysts go, bet against them.
Here's something else to ponder. On CNBC's Squawkbox this morning, titans of industry graced the stage - GE's former chairman Jack Welch, Southwest Airlines Herb Kelleher, Warren Buffet, Sun Micro's Scott McNealy. These guys are not nearly as optimistic for recovery in 2002 as are the analysts and economists. Warren Buffet in a more relaxed moment said he saw no value buys out there right now and told investors to get used to 7% returns over the next decade, "which is really quite good" he opined. In the grand scheme of history, he is correct. But as option traders, we hope to do better than that. While Warren profits from appreciation of stocks, we traders can profit from either direction. That's the beauty of the charts.
OK, so what else? I'll keep this brief because we've heard Fundamentals Guy point this stuff out before. To wit: Economic stimulus package (not that it was a great plan anyway, as it was loaded with pork) now dead. Argentina in peril from looting and chaos; nearing economic default. JNPR earnings warning (big one - If anyone thinks CSCO and the QQQ will escape that reality, sell now and take the cash behind Door #1; behind Door #2 will be less than a consolation prize). MSFT with huge security breach potential in Windows XP (They offer a patch on their Web site). JPM has twice as much exposure to ENE as thought, and got killed today (there will be others, as this has been compared to the unraveling of Long-Term Capital).
Well, we always have our chart to drown out the bearish fundamental news. Or do we? Let's hover over these charts together and see for ourselves.
Dow Industrial chart (INDU):
The Dow is looking rather, err, mixed. Weekly chart goes in favor of the bears with resistance hit and stochastic rolling from overbought. The daily chart is about as complicated as I could make it - the analytical type in me. Focus on the circle that shows the 200-dma at 10,106 and the 62% retracement just over that. The 50% retracement is at the red horizontal line of 9775. Oh, and that ascending support line from two weeks ago? Looking like resistance now. While it looks weak on the surface, the declining tops in the 10-period stochastic are not seeing price action follow it down as severely. There is some inherent strength keeping the Dow afloat. Notice that the 5-period stochastic is still bullish as it enters overbought with no sign of turning down yet either. 60/30 oversold. Inconceivable as I believe a rally to be from here, the 60/30 stochastics say we could see a pop anytime. With a triple-witching in store tomorrow, anything is possible.
NASDAQ-100 chart (NDX):
NASDAQ on the other hand is starting to show some weakness. To the red circle. . .while the pop over the descending trendline on Tuesday had me thinking bulls had stole the show again, bears stole it back today as the daily candle fell through both descending and ascending support as well as horizontal support at 1600. The green circle is an area of potential support, which given the likelihood of CSCO taking a nosedive soon, I would expect to see tested. The clearly bearish weekly chart and bearish stochastic signals on all timeframes suggests bears will establish a new trend in their favor. For gunslingers, the 60/30 charts are buried in oversold (Help! I've fallen and I can't get up) and begging for release, which may in fact prove to be a bullish swing trade opportunity.
S&P 500 chart (SPX):
Looking at the big dog SPX, the weekly chart, as in the others is bearish on all counts. Daily-wise, like the Dow, stochastic trends showing a series of lower tops (but currently bullish) are not dragging price lower with them - still some inherent strength. Support comes in at the 50-dma of 1120 and again with horizontal support at 1108. As for resistance, unlikely to get there. But if it does, the 200-dma of 1169 and the 38% retracement off the late-September, 2000 highs will keep a lid on the action. 60/30 charts while oversold or nearing oversold don't appear ready to spring back to life in this environment. But should we see a bullish reversal out of oversold from current levels, a call play might be the answer.
Many are wondering about the VIX. Me too. Clearly complacency is setting in as it reached 22.90 earlier this week and currently sits just over 24, yet there is no abject panic - yet. My personal thinking is that despite the bearish action of today, especially on the NASDAQ, this market is not ready to crater yet and we may very well see a slightly positive day tomorrow. However, with triple witching upon us, do not expect a barnburner. This market is still quite mixed and has yet to tell us that it prefers one direction over another.
For tomorrow, I offer the same sentiment as Austin did last night. This is not a time to buy and hold anything. Those who do get slaughtered and there is nothing worse than losing a ton of money at the holidays' doorstep. This is a market best left to scalping daytrades and performing hit-n-runs. Watch the charts like a hawk and scalp from swings in the 10/5 setup as long as it runs in synch with the 60/30 charts. Whether we see those trading conditions tomorrow is anyone's guess given the triple witching. I lean toward the notion of volatility as a result, not toward stability. Only time will tell.
See you at the bell!