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Support -- where buyers are expected to swoop in -- is at 1,620 for the Nasdaq, 9,900 for the Dow and 1,065 for the S&P
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Date Posted: 26/07/03 10:04:50am
In reply to:
http://www.bayarea.com/mld/cctimes/6372664.htm
's message, "Posted on Thu, Jul. 24, 2003 Translink--San Francisco" on 25/07/03 3:13:11am
14/5/2002
Resistance -- the point where sellers are likely to emerge -- is at 1,700 for the Nasdaq,10,200 for the Dow and 1,100 for the S&P, according to research firm Schaeffersresearch.com. The levels are key elements of technical analysis, which studies prices, volume and charts.
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Support -- where buyers are expected to swoop in -- is at 1,620 for the Nasdaq, 9,900 for the Dow and 1,065 for the S&P
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Egoli.
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Bear rally or Bull trend? Part 2 27/06/03
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Part 2 - The Ultimate Test
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It is clear to us that up to this point, the equity rallies post the July '02, October '02 and early March lows have been driven in large part by hedge and shorter term performance oriented money. As we have related to you in the past, the public began backing off equity mutual fund purchases almost one year ago. Except for very short term bursts of contributions, such as was seen in April during the weeks leading up to the tax filing and pretax plan contribution deadline, they have not been a factor in providing buying power to the macro equity markets. In like manner, again as we have documented to you in the past, cash in the equity mutual fund complex has really ranged between the low and high 4% level over the last year.
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For all intents and purposes, equity funds have remained fully invested. For them its been more a game of sector rotation. And rotate they have. The tell tale sign of hedge and short term performance money significantly moving the markets at the margin can be found in the action of high beta stocks relative to the broader equity averages as a whole.
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Moreover, many a large equity fund has become much more defensive in orientation as a natural reaction to the slaughter in technology. In the subscriber portion of the site, we recently detailed asset allocation in what Morningstar categorizes as "blend" equity funds. These are some of the largest equity fund behemoths walking the planet at the moment. In studying only those funds with asset in excess of $2 billion, the following table details the average sector weightings of the this group at their last reporting dates relative to the respective S&P sector weights as of 4/30. This is what we found.
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To cut to the chase, many a large equity fund is currently underweight tech. A completely logical stance given both the performance disaster of this group over the last few years coupled with the fact that fundamentals remain questionable at best. The recent news out of TechData and Ingram Micro should have sent shivers up the spines of tech investors everywhere. These two aren't just important members of the channel, they ARE the channel in terms of tech sales. A run in tech would be an underweight tech equity fund manager's worst nightmare right about now. And that's exactly what's happening. In reviewing big-boy blend fund Magellan, this little excerpt from Morningstar basically says it all:
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"In years past, manager Robert Stansky has adeptly bought tech when it got oversold and trimmed when it rallied. However, he's not biting at this point. At year-end 2002, the portfolio was little changed from June 2002. The fund continues to hold less tech than the S&P 500 because Stansky doesn't see a rebound around the corner. Tech valuations remain high, in his view, and revenues aren't about to spike higher. Instead he prefers steadier firms that still produce respectable profits despite the sluggish economy."
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Get the picture? The broader techs (biotech, hardware, internet, software, etc.) are currently running because they are high beta stocks being moved by heat seeking performance oriented money. Fast money has been taught that in bear market rallies you jump on high beta stocks and ask questions later, if at all. This lesson has been reinforced in each significant rally to date in this bear.
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Coincidentally, it has taken major institutional equity representation a good three years to become underweight tech. So the current environment becomes basically a perfect world to relive a few old memories. Memories of the late 1990's when everyone and their brother simply could not own enough tech. Those in the equity fund business that did were simply fired. That lesson is fresh in portfolio manager minds. Although we have absolutely no idea what will happen, as we look to the month ahead we have to believe the institutional performance pressures are nothing short of acute.
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Fear and Greed
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Also, back a month or so, Barton Biggs at Morgan Stanley penned a relatively optimistic piece on the equity market based largely on the fact that a lot of pension funds he was speaking with were underweight their benchmark allocation to equities. These pension executives were naturally scared and preferred to "wait until conditions turned more favorable". After all, the pension underfunding spotlight is burning brightly by this point. Like equity mutual fund managers, the pension executive crowd are not paid to think independently. They are paid to perform relative to their peers and appropriate asset class benchmarks, or they're fired. Any questions? Certainly this equity rally has struck a good amount of fear in the hearts of many an institutional equity participant. Participants little concerned with news from TechData, Ingram Micro, or any other corporation for that matter.
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Participants very concerned about lagging benchmark investment performance and perceptual peer performance. One last humble observation. Isn't this exactly how the large pension funds in this country got into under funding trouble in the first place? By blindly following the herd? You bet it is. Big institutional money scared into buying for performance reasons will need liquidity. Unlike the hedge crowd, they can't chase Expedia at 13x's sales or 60x's this year's estimated earnings. Even a Yahoo at 86x's or a Juniper at 176x's isn't going to do the trick.
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IF the averages move higher into early June, there just may be one significant fireworks show left before the quarter end due to outright institutional terror. Blind fear at potentially being left out of the crowd. It would probably happen in the large cap names. And, of course, this would also be occurring at what is perceived as a critical technical juncture.
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