This was Barbara Kollmeyer’s ‘if it bleeds, it leads’ banner headline, Friday, July 17 (MarketWatch). Ms. Kollmeyer goes on to say, “some strategists are starting to think either history could repeat itself for technology stocks, or we could be opening a nastier chapter in the book of bubbles.” For all the gory details, click HERE. Actually, don’t waste your time.
It is beyond comprehension that 15 years after the tech bubble (actually Dot.Com Bubble) burst anyone with half a brain would be worried about the fact the Nasdaq has finally eclipsed (in a very small way–78 points) that ‘bubble’ high (5132.25). Come on. We’ve had 15 years to burn off the valuation excesses, purge the junk and see the real companies in the index come to the fore. I’m not going to detail the progress we’ve made. But if you are interested is an update, Dan Gallagher’s “Heard On the Street” WSJ entry from March 2, 2015 is a good reference piece (Nasdaq Math: 5000 Doesn’t Equal 2000). If you are at all concerned, this is a good read.
Piling On
Piling on Kollmeyer’s frightening banner is Mark Hulbert’s (Hubert Financial Digest) commentary (“Greed is trumping fear and that’s bad for stocks“). Why not, the market had just made another new all-time closing high the day before. This article is somewhat tangential to ‘tech bubble’ talk in that it concerns a recent set of seminars held in San Francisco, called “The Money Show”. Hulbert attended and was much chagrined to find only a small number of the sessions dealing with managing risk and avoiding losses. This was in stark contrast to similar sessions held several years ago(post 2008/2009), where risk and loss avoidance were the main focus. Ergo, he postulates that the Bay Area appetite for risk equals the national appetite for risk, which would be a bad thing. There is a flaw in Hulbert’s thinking and that is extrapolating the epicenter for wealth creation in the U.S. (the home of Apple, Google and Facebook) to the rest of the country.
I find it hard to square this with the rest of the country and the immediate ‘flight reaction’ one sees in the treasury market any time there is a dust-up over Greece, a bad Chinese economic number or comments indicating a certain quick upward bias by the Fed to increase interest rates. In spite of the fact that a Fed Funds rate increase looks imminent in the next few month and the market has moved to new highs, the yield on the ten-year US Tsy note remains pretty close to where it began the year, currently 2.35%. Most people are still very cautious with many continuing to look for what has been a most-elusive correction in modern times.
Where’s the correction?
In my limited experience, the market tends to do what confounds most people, especially those with short-term viewpoints. As it pertains to corrections, this market may not give us the conventional 10 or 15 percent move down in one fell swoop. Why? That’s what everyone is looking for. Don’t get me wrong, this could happen any time. But, it will come as a result of some sort of exogenous event, a blindside. These events are just not predictable.
In the meantime, we may have been going through what many might call a Rolling Correction. In a rolling correction a stock may make a new high, then over a period of months (maybe a year or longer) it moves lower, creating a correction. This repeated over time and over a large number of issues can provide a correction without a major, overall market break. For example, Google (GOOGL) peaked in February of 2014 @ $615 over the next 11 months it hit a low of $491 (a 20% correction from the previous high). It broke out of that range 7/16/2015 and closed 7/17 at $699.62. Bank of America (BAC) peaked at $18.21 in December of 2014, fell to $15.63 in a month’s time, January of 2015 (a 14% correction). BAC closed 7/17 @ $18.10.
These are examples of stock price action in a rolling correction. I have observed a lot of this going on in my own portfolio over the last year. It may also be observed in the action of groups –recent strength in transports gave way to tech and biotech picking up the banner. Again, no guarantees that we are not going to get a big, market-wide correction, but the market seems to like to do what confounds the most people, most of the time!
“Nasdaq surge is triggering … flashbacks.” Gime a break!
What do you think?
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