Reply #39: The (Rude) Awakening

[54anickel]

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=53283

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Even though some of his funds had a fine performance in the latter half of 2005, Bob is now concerned about his investment portfolio. With Hurricane Katrina and rising oil and gold prices, Bob never expected his growth mutual funds to perform so well. And, while his co-workers have been talking about the stellar returns in their international mutual funds, Bob’s been thinking about the effect that all this debt will someday have on the markets. He’s also been uneasy because of a friend’s recent comments about high amounts of insider selling. Bob remembers hearing about a lot of the insiders at his firm selling their stock in 1999 and early 2000, before the downsizing. He remembers watching his accounts decline and being told to “hold on” and “ride out the dips.” He’s not sure he wants to go through that again.

Right now, there are millions of Bobs and Sallys in the investment markets. They’re hoping that the traditional strategies they used during the greatest bull market, and the greatest credit boom, in history will continue to work. They hear all the soothing rhetoric from conventional news sources, but they’re starting to become aware of other news sources with different opinions, backed by hard facts from credible sources. While 2000 could be blamed on the dot-coms, the recent parabolic growth of credit seems to have broadened the speculation to nearly every asset class.



Let’s let the charts speak for themselves. Here we see a chart from Alan Newman’s December 5th edition of Stock Market Crosscurrents (www.cross-currents.net). This chart shows that there are 29 insider sells for every insider buy, or, if you prefer, 2000 shares sold by insiders for each share an insider purchases. One thing we know – people do not sell their stock if they think the price will continue to go up. With this large discrepancy, it looks like insiders are preparing for change.



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Fundamental analysis, like household debt and mortgage equity withdrawal, tells us what will eventually happen. Technical analysis, like the charts in the rest of this article, tries to give us an idea of when it will happen. For more evidence of a major turning point in the markets, I encourage you to review our annual picture edition from 2005. While there is no such thing as a Holy Grail that can tell us “this is the day,” when we start to see these indicators cluster together, we know that the risk is mounting.

If you have grown comfortable in the warm embrace of bullish rhetoric, I would strongly encourage you to do some homework. If you took a hit in 2000 to 2002, then you’ll want to take some time and do a search on what your current “experts” were saying at that time. If their rhetoric was continuously bullish over the last ten years, you aren’t getting advice; you are being sold. Ignorance is bliss, until it’s not.

much more....