current market conditions

whats everyone's opinion on the outlook for the market now. has it near bottomed as most of the bad news is out. or will it continue down as the news sinks in. or wil another terrorist incident cause a crash? what sectors should have the best results.

Uncertain times are often a good time to go long the stock market.


Now does not seem like one of those times.

Long term you could invest now and do very well; however, I think you'd be well advise to keep a significant portion in cash, because the best values will most likely come early next year.


Specifically I'd look for retail stocks to have a mediocre holiday season, and come down for a good buy in January, and possibly make a strong comeback within a year or two.


-D

I said go long QQQ and SPY when VIX got over 40. VIX actually got up to 57. VIX was over 40 when I posted so if you bought QQQ the next day it was about $29 and SPY was $99. At this time SPY is $110 and QQQ is $36.60. I also recommended selling when VIX goes below 25. Thats pretty conservative and you could hold till lower but I'll stick with 25 and not be greedy. VIX is at around 31. So I'd just be holding right now and take profits when the VIX hit my number.


Little worried about VIX as more mention of it but it seems to only last a day or so and people forget about it.

Well, it sould be choppy with more terrorism news like anthrax scares. But watch out for the earthquake that will hit in the first week of November, which will produce a rally.


Bill

i tend to think at least short long term trends rather than day by day stuff. the s&p 100 volitility index is way too much out of my league. i cant believe that it makes any difference over more than a few days of trading. once it has a following though that in itself can make it useful for trends. such as the dogs of the dow theory. it worked looking back and continued on, as so many people bought the stocks, but alas, the smoke cleared and the dogs of the dow barffed. maybe it will prove out i dont know.

i like the spiders idea but i usually stick with individual stocks. though shorting the spiders when the market is stumbling works, maybe. i havent messed with QQQ yet.

at this point in the market im thinking that the bet is to follow what the big funds are doing as they will push those sectors up and then get out quick as the fanfare dies. but as i say i dont trade too much that way execpt to make big plays when i see something that is waky.

i am not good with the retail stocks as they are hard to evalute and seem to move more on speculative earnings which i am not privy to. but if retail stocks start to move up i look at colateral companies like maybe trucking companies, as someone has to deliver the stuff. this way you can be slow to move and get in on the ground floor with much less risk.

I would avoid buying much of anything right now. There is going to be a ridiculous amount of tax loss selling by the big players before the year is over. In January it will probably be time to go 100% long in the market. Sectors to buy will probably be things that were ignored the past 5 years. Small caps and value should do well. It's possible Europe and Japan will do really well especially since the dollar is going to weaken because of all the liquidity pumped into the economy and the slower (or negative) growth relative to overseas.


Technology will lag vs. the rest of the market for a few years.


I wouldn't worry at all about the terrorism. They're not having enough of an effect on things for the market to worry too much about it.


Just my opinion...I've been wrong before.

Bill/Nigel's post makes as much if not more sense than the rest. Without a crystal ball, there's just no telling, and even if you had the crystal ball you'd have to guess which way things would move after the earthquake.


All joking about earthquakes aside, I'm shorting QQQ after the meteor strike...

The VIX over 40 is fairly unusual event. At 57 it was very unusual. The only reason I used the VIX as a buy signal was that I'm fairly certain the markets are close to their bottoms and from market history spikes in the VIX have marked a good buy point after major declines. Of course I've got a lot of company in making that observation. Sometime overlay a 15 year chart of the S&P 500 onto a chart of the VIX it's very interesting at least to me. I base the sell signal on where the VIX has bottomed out over the past 5 years or so and I'm being conservative. It's just something I watch. The main thing is that all indicators both financial and economic point to a turn around in the economy sometime in the first half of next year and I believe the stock market is starting to anticipate it.


QQQ's are much more volatile than SPY's as I'm sure you are aware of. With earnings so uncertain now it's hard for me to zero in on individual stocks so I'm just trying to be on the right side of the markets.

then you would think the january effect would be big this year because of the tax selling. so buying in late december may be best right?

Late December sounds like a plan to me. Of course if popular sentiment starts to eliminate any possibility of a late year rally then you might see the selling earlier. In any case it's going to be tons of fun!

Tom, what do you find is pointing toward a recovery in the first half of next year.

FWIW here is what I think about GDP growth in the near future. I'd like to discuss it in terms of it's constituent parts Consummer spending, government spending, net exports, and investment spending.


1) Government spending. I don't think there is much doubt that we are and will continue to see a big spike in government spending in the near term. I've even Sen. Dominici state that it would ok to run a deficit for a year or two. Also I'm fairly certain that something will be done to help consummers in the form of more disposable income. So the economy will get a boost from it.


2) Investment (capital) spending. For the last 15 months or so I would say that capital spending has been in a depression in this country. I've looked at some charts on capital spending in the last 20 years or so and there was a big trough in capital spending that preceded the last recession. Anyway I don't see how it can get much worse capital spending wise so IMO it doesn't have anywhere to go but up. Possibly with the layoffs that have come about employers will again look to increase productivity of their current work force by making the appropriate investments in their businesses. The climate for corporate financing of such activities seems to be quite good from my perspective but we'll see. Anyway I'd be shocked if capital spending declined from this point but I'm not sure how much it will pick up right away.


3) Net exports. Well actually we run a trade deficit and I haven't monitored the deficit very closely but from what I remember it has declined year to year and the trend is such that the trade deficit is narrowing. I'm sure this has a lot to do with some slow down in conummer spending. At any rate a narrowing of the trade deficit is positive for GDP growth. The value of the dollar is also important to this component. To be honest I haven't followed recent developments in the dollar but I'm fairly certain it is still very strong against the Yen, Euro, and the Pound. I'm certainly no expert but I would have to think that the dollar is a lot closer to it's top than it is to it's bottom so a weakening of the dollar could help also in increasing GDP.


4) The last component is the key component and the largest component of GDP and that's consummer spending. It's the wild card in predicting a recovery. There has been much speculation that the consummer is going to be spending a lot less as the economy becomes more uncertain and employment becomes more uncertain. The consummer has pulled back some but not to the degree that a lot of the more pessimistic people had predicted. The layoffs are having an effect but this is happening after labor markets were very tight and I think Greenspan believed they were too tight beyond what is known as the natural rate of unemployment. Interest rates are low, the consummer is retrenching as home values have stayed up fairly well, and consummer confidence does seem to be stabilizing. Consummer confidence has come down quite a bit but it is coming down from record levels. All in all I believe (maybe it's more of a hope) that the conumption will not decline a lot from this point. With all the other factors of GDP pointing to growth I'm thinking the consummer will be strong enough to show positive > 2% growth some time next year.

While there may be some short term (1-2 months) rallies (like the one we are in now) the probabilities are *very* high that the market in general will be much lower (by at least 20%) by this time next year. Key reasons:


1- in the past few years we have just lived through what is undoubtably *THE* greatest speculative mania in the entire history of the U.S. stock market. If other manias of the past are any guide, then the unwinding of the excesses created will take not just 1 1/2 years, but many years.


2- the most predominant "cycle" in the U.S. stock market is the 4 year cycle tied to the presidential elections. There is an uncanny characteristic for the market to make a bottom two years after the election. Just look back through history, you will see it time after time after time: 1998, 1994, 1990, 1987 (the only one in the past fifty years that was offtimed - it was one year late) , 1982, 1978, 1974, 1970, 1966, 1962, etc. It is hard to believe how clockworklike these 4 year cycle bottoms are! The bottom in the current cycle will not occur until 2002, next year.


3- overall market valuations, even after the extended declines we have already witnessed, are still by historic levels extremely high. Again, if history is any guide, in the ensuing unwinding of the current bubble we will see not only a return to normal values, but it is likely that stocks will actually move to *undervalued* as greed continues to be displaced by fear.


By this time next year, the Dow should be <7500; the S&P500 <900, the Nasdaq Composite should break the Sept '01 lows under 1400.


Mark Courtney

The question in my mind is real estate. I have to wonder if an S&L type crises is brewing in CA and NY due to the collapse of the dot com economy. A few properties I looked at had mortgages that were refinianced shortly after purchase (less than 1yr) for an amount that was close to the purchase price.