Wednesday, August 09, 2006

Stock market trends: bearish

The Lowry's stock market figures: The Buying Power Index (demand) stands just above a multi-year low of 294. The Selling Pressure Index (supply) stands just a few points below a multi-year high of 621. The spread between the two indices is a remarkable 327 points. I've never seen such a wide spread before. The buying never seems to come in. And the selling never seems to subside.
Conclusion -- bearish.

What will bring the big money, the important money, into the stock market? I've seen these periods before. And my experience tells me that there is only one thing that will bring in the important money. That one thing is lower prices, highly attractive valuations.

The Lowry's statistics do one thing -- they measure supply and demand. Right now I know that stocks are not in great demand. Further, I know that big money is attuned (as always) to valuations. When stocks sell at low price/earnings and fat yields big money likes them. When stocks are expensive based on high price-earnings ratios and low yields big money avoids them.

As a rule, the public does exactly the opposite. Which is why over any extended period of time the public tends to lose money in the stock market. And it's why, over any extended period of time, investment money tends to win.

So stocks are expensive today. What does that mean for you and me? It means that we should be accumulating money so that we will be ready when the bargains appear. Sure we can buy a little of this or trade a little of that, but that isn't where the great profits lie. The great profits lie in buying top-quality stocks when they are being "given away." When is that? It's at bear market bottoms such as 1932, 1942, 1949, 1974 or 1982.

"I've never seen a soft landing in 53 years." Statement last month by the chief executive of Countrywide Financial Corp, the US's biggest mortgage lender.

There's almost always a bull market in progress -- somewhere. Today the bull market is in real money, known as gold and silver. How much gold and silver do you think the general public owns? My guess is "Next to none."' And that's about par for the course. When the great values are available, the public isn't in them. We're still early in the precious metals bull market. The precious metals bull market may last for many years and go considerably higher (in terms of paper money) before the public decides that it's time to join the upward parade.

In the meantime, what is the public doing? Instead of building cash or assets, the public is going deeper and deeper into debt. And right now, that's a great danger. It's the reason why the Fed will do everything in its power to ward off economic contraction. Contraction is a debtor's worst enemy because contraction and deflation increases the negative power of debt.

It's incredible -- nobody seems to be noticing or talking about the ongoing collapse in the D-J Transports. I've never seen anything like it. Am I on a different planet or what?!

The market acts like some sort of huge, dying animal. It's slowly drifting downward, with stock after stock almost secretly falling apart. I'm looking at Whole Foods, Starbucks, Countrywide Financial, all the home building stocks, Yahoo, Amazon, Ebay -- even mighty Google appears to be fading. It's like investors don't want to believe what's happening. It's as though they're hypnotized and seeing only happy fantasies and sugar plum fairies. Or maybe it's me -- am I looking at the wrong computer site or what?


Blogger Jon O. said...

You are ignoring some computer stocks. Take a look at PC industry, it has slowed in the past year. Intel, Dell, Lenovo, AMD (overvalued because people thought they would steal market share from Intel but didn't) and others have been slipping bad. Intel expected higher growth this year but the 2nd half slowed considerably. Also look at Apple and Samsung - not sure how they are doing.

9:40 AM  

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