Call It "Investing"
It isn’t investing. Not today. Not in this stock market. Not with all this crazy stuff going on within it. Not without any dividends. Not with these valuations. Not with this amount of overtrading. Not with all of this insider selling. Not without any insider buying. Not with all these hedge funds. Not with all of this shareholder dilution. Not with all this margin debt. Not with all the stock options. Not in this economy. Don’t insult my intelligence. Don’t call it investing. It is not investing – it is speculating.
Hold the valuation rationales for the US stock market. They don’t hold water or pass mustard. You can’t rely on Fed action saving most US stock portfolios forever. Sure, they can hold things up while the public is fooled into doing what they normally wouldn’t do, presumably for the good of the short term economy. (Spend excessively and incur mountains of debt.) But know that this is not sustainable, although at times like this it may appear as though it is. But in the long term, valuations will prevail (they always do). When will valuations prevail? It will occur sometime between tomorrow and when the majority of the US Baby Boomers retire. Sorry, I cannot be more specific; but what do I know anyway? Cramer I’m not. (And not being Cramer will have its day in the sun as well.)
Small dividends, small value. Big dividends, big value. No rationale will ever change that; although at times like this, it is tempting to try to invent or buy into someone else’s rationale. You get less than 2% yield for the S&P 500 and less most other places in the US market. So to buy it is to depend on another person or thing standing behind you to pay more than you did for your sub 2% yield. This is possible for a finite amount of time. This is even appropriate. If there’s a good chart, buy it. Got a bad chart? Don’t buy it. But for now, let’s not kid ourselves. If you do this, you are not investing; you are speculating.
With every tick up, this market gains some more credibility with the public, it seems, and this is good for someone’s business. With every tick up the rationales become a tick more palatable. Another contrarian joins the crowd. The market continues to be its own soothsayer. In turn it ticks up again, and then this feeds back again and again and again. It's working like a charm now as it seems that even one day of selling is met by “bargain hunters.” Even the technicians can’t find an acceptable entry point in the form of a pullback, so all they can do is chase. It’s a lot of fun; but let’s not kid ourselves because it isn’t investing and shouldn’t be called that. Call it chasing. Call it speculating. Call it playing the market. Call it herd behavior. But don’t call it “investing.”
And while were at calling things what they actually are, don’t call it a private equity deal; call it corporate rape.
All is not well in TechLand. The Nasdaq suffered its 2nd straight “distribution day,” which is a decisively down day on higher volume that in the previous session. Also key to the long term technical picture is the levels at which important technology stocks appear to be failing. Take Cisco, as shown in the long term chart below. Following a mania-high made approximately concurrent with the Nasdaq bubble, Cisco rallied to an intermediate term top at 30 around New Year's of 2004. Since that time, Cisco swooned down to about 17 where it held support on 4 separate occasions. Since this summer, Cisco rallied almost straight up, yet when it got near the important long term technical level of 30 three trading days ago, it failed decisively. Market cap - $160 billion. Dividend – Zero.
Similarly, IBM’s chart indicates 97.5 as a key technical level where IBM has failed twice before, including approximately New Year's 2004. After hours, following its quarterly earnings report, the stock is selling off at about 94, which would represent its 3rd failure near 97.5. IBM made some nice gains earlier in the week by speculators looking to game their rosy quarterly earnings report for a short term speculative gain. These are not investors; they are speculators. Market cap – about $140 billion. Dividend – 1.3%.
Similarly Dell is steeped in a bear market. Market cap $56 billion. Dividend – Zero.
The chart of Oracle is compelling as it may have failed near the base of its late 90’s bubble launch, and an intermediate term high made in mid 2001. Market cap $89 billion. Dividend – Zero.
Another important stock, Yahoo, made a head and shoulders reversal, and following its completion rallied to its neckline. It has since failed. Market cap $38 billion. Dividend – Zero.
Finally, the long term Intel chart is a good example of a long term bear market. Market cap $119 billion. Dividend, 1.8%.
Have a great evening.
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