Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
I have been away for the last week,
which is why there haven't been any editions. Now that I'm back, it's time
to get caught up. Many of the featured companies have exciting events to
report, the first of which will probably be covered in the weekend edition.
Until then, here's a comment on the current market environment.
 |
Value Doesn't
Matter, Until It Matters |
|
As of Tuesday's close, the Dow was
up about 100 points for 2004, and the NASDAQ was down about 100 points.
The first two months of 2004 have been a sideways grind. January's gains
were matched by February's losses. The market seems to have returned to
its normal seasonal patterns. February is generally a down month
as the market digests October through January's usual strong performance.
The market's recent poor performance
no doubt correlates directly to recent forward looking earnings estimates
for the S&P 500. As of the end of last week, the 52 week forward looking
consensus of operating earnings estimates for the S&P came in at $63.40,
down from $63.45 the previous week. This is the first sign earnings acceleration
may be waning.
On the bullish side, actual 4Q03
earnings for the S&P 500 yielded a real 27% gain. Early estimates were
for about 15% earnings growth. Over the short term the market can be very
emotional and reactive. Over the long term, the market generally gets it
right. Now you know why the market traded so well in the 2nd half of 2003.
It was pricing in 27% earnings gains.
Most technicians are calling for
a corrective phase right now, which is why I don't believe it will happen.
The market likes to confound the majority, and the majority is expecting
a pullback.
I would argue that pullbacks or corrective
phases can take many forms. A quick 10% drop precipitated by irrational
fear is the lowest risk form of a pullback. A multi month slow grind down
is the worst kind of pullback, as the process tests investors' patience
and belief.
In my mind, a period of sideways
grinding equates to a pullback or consolidation phase. Two months of sideways
action is as good as two weeks of downside action. This two month period
can allow performance to catch up with expectations. The chart to the right
represents about the last 180 days of trading. I believe we are at a critical
juncture. The red support or uptrend line is not being followed by many
technicians, but I believe it is crucial.
If the support line is pierced in
a meaningful, I believe lower levels are in store. If it happens
we will be looking for a level of support from this chart on the left,
which measures the NASDAQ from last March's low. This is the point where
many believe the new bull market began.
Right now the main stream Wall Street
Media can't stop talking about value. Where should the market be? Everyone
is predicting a pullback so that valuations can meet expectations. No one
was talking about value when stocks where climbing the charts unmolested.
As I stated, value doesn't matter until it matters. It matters now, but
it won't if the market starts making new highs.
If the market sells off more significantly
we will be looking for support in the 1720 to 1810 range. This would be
heaven sent for those who have been sitting on the sidelines waiting for
a pullback.
I don't believe it is going to happen.
I believe a longer period of sideways action is more likely before the
market charges forward consistently once again.
Charts Provided Courtesy
Of TradePortal.com |
