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| Stocks: No Bottom Yet! - Aug. 9, 2004 |
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Introduction
The stock market's technical condition has swung to being materially short-term oversold, and it has happened quickly. However, stepping in front of the recent slide right now would likely prove a serious mistake!
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Last week was truly a week from hell for those holding large long positions in stocks. My seven measure tracking group fell an average 4.3%, although the median decline was "only" 3.7%. Three of the group's seven components fell more than 5% for the week, with the NASDAQ 100 losing an ugly 6.1% of its value.
I'm sure there are a growing number of investors who believe a long-side trade is at hand, and one could be. But roadrunner speed might prove mighty useful in making such a trade a successful one.
I plan to have out a more detailed update by tomorrow morning, including a final guess on what the Federal Open Market Committee will do at its policy-setting meeting tomorrow. As matters stand at the moment, I'll stick with a prediction the FOMC moves ahead with another quarter-point hike in the Federal Funds Rate.
In advance of tomorrow's missive, I'll opine now the strong conviction that the stock slide, on balance, is not over -- notwithstanding some unsuccessful, short-term rally attempts.
Significant and growing damage has been done; more is coming, I believe. Therefore, I also think a new step has become obligatory in the overall equation leading to any rally of import or duration, to wit: a legitimate -- emphasis on "legitimate" -- selling climax. Here I'm talking about the real deal, something akin to the washout bottoms the equity market experienced in July 2002, or October 2002, or March 2003.
And in one exceptionally important respect, this is more difficult now than versus at least the 2002 episodes. Because the huge structural short positions existing then to create the demand to make the bottoms don't exist now.
According to the incessant ranting of the CNBC crowd earlier this year, none of what's now occurring was ever supposed to happen. It's a funny thing (at least a figuratively funny thing) about that old CNBC crowd, isn't it?
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