IDS World Markets Fri 5th October 07

[DrStool]

My last observation for today: the market has been going up on newsnosie only. What's that saying about buying the rumor and selling the news?

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The market has not been going up on newsnoise, in my view. Newsnoise is only a trigger. The fuel is liquidity. Cash coming out of the collapsing ABCP market is going in several directions, and one of them is the stock market. Some investors view the market as a highly liquid alternative for parking short term funds, especially so, when it is an uptrend.

 

A very dangerous game, for sure.

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try to explain that philosophy to an arbitration panel....."stocks are like money market until they go down"

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:lol:

 

What a great line.

[Drano]

A/D intraday confirmation failure

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details, please?

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Indexes had two spikes today.. one at the open, and another one, a couple of hours later, that sent them to new intraday highs.

 

However, the internal A/D never made that second new high, failing to confirm the move. This is very short term only. When I've seen that happen before, the market has sold off later on in the day.

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Thanks, Sudsy.

 

 

Um, just in a kind of symbolic buddy-type way....

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You're welcome..... don;t mention it.... really... please... to no one...

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Don't worry, no one's looking.

[K Wave Rider]

Bull Poster Child CME powering to new All time highs..I see nothing bearish in that chart....

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I actually think it's worth a trade here on the downside. This is a choppy stock. I would not go long here.

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I was early on putzing BIDU, but money flow peaked 3 weeks ago.

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Like I said before in the 200s..BIDU looks like NAZ 1999 to me. Would not be surprised to see a 600 print before all is said and done. Full scale blowoff in that one, tough to tell where she stops, but nothing that even looks like a sell to me yet, cept maybe for a pull back...

[K Wave Rider]

Wheat and Soybeans possibly on verge of crash here....

[I_Am_Madness]

Find it odd GS isn't really participating. Wonder what's wrong.

[LeeWhee]

(Doc, could you post this on the blog?)

 

How 'bout the Hang Seng (HSI)? The Hong Kong market is at all-time highs and up a sweet and tasty 50% since the August lows. For those keeping score at home, that was seven weeks ago.

 

Is the Hong Kong market worth 50% more than it was seven weeks back? Apparently Mr Market thinks so.

 

The Hanger celebrated in style during the first two days of October and shot up another 6% from the September close. But the celebration didn't last too long as it sold off 7.5% on Oct 3-4 for the biggest two-day decline since August.

 

Is this just the usual profit-taking or the start of something more sinister for the Hanger and for Chinese schlocks in general? Next week could provide more clues, since the Shankhigh market has been closed all this week for the Stewed Chicken Feet Holiday.

 

But there's one thing perhaps worth noting: the Hang Seng closed September at a P/E of 21.18. And for a brief moment on Oct 3, it was trading at 22.45. Is this important? It could be.

 

The Sept 2007 monthly close was the first monthly period since January 2004 when the Hang Seng closed above 20x P/E. And it was the first Sept monthly close above 20x since 1987.

 

Since 1974, the Hang Seng has had a great deal of difficulty maintaining a valuation above 20x. In fact, the HSI has only traded at 20x or above in just 24 monthly periods over the past 33 years. That's just 6% of the 396 months since 1974. And the exception of the 1990 decline, every 20%+ HSI selloff has coincided, or nearly so, with a peak P/E reading of 20x-22x. The outlier was the 2000 selloff which came after a peak P/E of 27.88.

 

There have only been six prior periods since 1974 when the HSI has traded above 20x P/E. Here is a list of the occurrences, the peak P/E at the time and the subsequent declines:

 

Jan 1974, 21.13 peak P/E, -35%

May-Jul 1981, 20.72 peak P/E, -33%

Jul-Sep 1987, 22.35 peak P/E, -45%

Dec 1993-Jan 1994, 21.82 peak P/E, -61%

Apr 1999-Feb 2000, 27.88 peak P/E, -55%

Jan-Feb 2004, 21.73 peak P/E, -23%

Sept-Oct 2007, 22.45 P/E, ??????????

 

As you can see, the current P/E of 21-22x is right at the level of the previous HSI P/E peaks from 1974, 1981, 1987, 1994 and 2004. The only time the Hanger was able to get above this number was during the madcap days of 1999-2000.

 

Also worth mentioning that, while the HSI didn't necessarily crater the minute the P/E rose above 20x, it did have trouble making much upside headway prior to at least a 20%+ selloff.

 

When the HSI topped 20x in December 1993, it was able to climb another 4% into the first trading day of 1994 prior to a -45% selloff. In January 2004, the HSI gained another 2% over a few weeks, then fell -23%. Even in April 1999, though the HSI went higher later, it was only able to gain another 2%, then went sideways-down for six months and lost -13% prior to the final blowoff from Oct99-Mar00.

 

So the lag between the peak P/E reading and the initiation of the selloff ran the gamut from immediate to a week to a month or so.

 

Of course, there's always the possibility that "this time is different." Maybe the HSI will grow its valuation to 30x or 40x or 50x, as the Shankhigh is valued right now. Perhaps the gubermint of China will be able to successfully let the air out of the Shankhigh bubble and transfer it, for a while, over to Hong Kong.

 

Given the history of how the Hanger trades when valued above 20x, this "bubble transfer" is clearly what Hanger Chasers are hoping to see over the next few months. The pai gow players are banking on another 1999-2000 sort of move. Will they get it? Stay tuned.

 

Using another metric, the dividend yield on the Hanger closed September 2007 at 2.04%. Is this low? Yep. Since 1974, the HSI has only traded at 2% dividend yield or lower on two occasions: right before the 1987 crash and right before the 2000 peak. Again, maybe things are different this time. At least that's the hope.

 

Over the long-term, the Hanger has been a strong performer. Since the October 1987 Hang Seng peak at 3362, the HSI is now up 759% over the past 20 years (based on this week's high of 28,871). This represents a compounded annual gain of 11.3% a year for the past 20 years.

 

For comparison's sake, since the Oct 1987 peak at 2746, the Sow Jones is now up 414% based on this week's high---a compounded annual gain of 8.5% a year for the past 20 years.

 

It probably surprises many to learn that the Hong Kong market has outperformed the Sow Jones for the past 20 years, especially considering the Hanger has had three 50% selloffs during the period while the Sow has had none of that magnitude. But worth noting that much of this long-term outperformance can be attributed to the action of just the past two years.

 

None of this is to suggest that the Hong Kong market is about to make a "top to end all tops." Maybe it will, maybe it won't. But the current level of overvaluation---both in terms of price/earnings and dividend yield---has historically been a decidedly poor time to "load the rickshaw" with Hong Kong schlocks. At least that's been the case since 1974.

 

 

http://main.hsi.com.hk/hsicom/table/MnPEHSI.html

[Bungster]

This market still resembles Marion Jones in 2000....

 

http://www.bangkokpost.com/sportsplus/spor...s.php?id=122364

 

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I hear she had some strange side effects from those drugs. Here's a more recent picture.

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She's gone through a couple of transformations...

 

[DrStool]

The problem with Philly is that everyone who comes there to go to school (usually at Penn or Villanova, or a myriad of smaller schools) likes it so much, they stay there. There are no Phillies fans west of the Main Line.

 

There are only two kinds of Phillaluffyans. Those who grew up there, and those who moved from New York to go to school there.

[LeeWhee]

According to SchlockCharts, the Q-balls bonered up to 52.74 on FOMC day (9/18). Didn't happen of course. But it just happened today. Maybe SchlockCharts has a crystal ball tool. Just added some Qball putz just for fun at 52.74.

[K Wave Rider]

 

 

Looks like a HUGE breakout at 19K, and then spike test down towards the breakout in August, followed by a powerful V bottom reversal to new highs, indicating the possibility of the beginning of a parabolic move to the upside. Looks to me like it it is just lifting off for a multi-year run.

[K Wave Rider]

NYA more new all time highs....

[K Wave Rider]

Trannies powering outta the base at 4800...trying to retake 5000 right now....

[Sudaca]

Believe it or not, intraday A/D still hasn't made a new high on this last spike

[1929_trader]

Nasdaq 5000, Dow 20,000 on the way... 2008 or 2009?

 

I guarantee it!

[DrStool]

Whoa. spx and qqqq just blew out 3 day cycle projections. resistance on qqqq at 52.88. if they clear that, the next resistance area looks like 53.15.