Tokyo TV

Monday, May 16, 2005 | 07:00 PM

I'm doing a spot tonite on TV Tokyo America; Should be interesting, as I speak not a word of Japanese, and thats the language its broadcast in.

Here's the discussion topics:

1. Where are the markets now?

The markets have been in a higher trading range since the elections, over 10,400 on the Dow, 2,000 on NASDAQ and 1185 on the S&P. That range has now broken down.

What’s happened is that the market has gradually recognized that inflation is heating up a bit and the economy slowing and therefore the environment for equities is a bit less attractive than before. I’m seeing signs that mutual funds are less aggressive on the long side, which suggests that stocks will get cheaper and eventually fund managers will step in again. Until then, however, the stock market is in a period of basic readjustment.

2. How does that look from a technical point of view?

For the past 6 months, you’ve seen support at 10400 on the Dow; during that time the market went to support and bounced back about 5 or times. In about March/April the markets suddenly saw the Fed, oil prices, and GDP in sharp focus. The broken support levels on the major indexes , even with present oversold conditions, makes it hard for the markets to make major headway. Look for a deeper correction. I think there’s a new range now where fund managers look to get aggressively long over next 60 days and we see bottoms of 1850-1900 on NASDQ, 9800 or so on DJIA and 1100 on the S&P.

3. What should investors do?

I’m staying neutral until this choppy market resolves itself. We’re oversold enough now that another little bounce is likely, but I don’t think it’s sufficient. I made my bearish call to step aside on March 29th when I decided to wait for a better entry point on the upside or downside. In my assessment, at current prices the opportunity for reward (maybe 5%) doesn’t justify the risk. I’m waiting for an opportunity where the reward is a 10-15% gain, and thus more commensurate with the risk. Our previous model assumed there would be real reform on Social Security by now which would push the market higher. That failure combined with the geopolitical situation means we’re going to have to wait.

4. What’s your outlook for stocks?

I need to see the psychological shift that happened among institutional investors to change again; they need to become more aggressively bullish or realize that inflation is under control and growth is robust, and expectations for future earnings need to be adjusted. At the moment, neither the 10-yr or 30-yr bond suggests robust growth. In the meantime, the markets will be choppy with little 100 point rallies and retreats, directionless. I'm guessing it’ll be mid-Jun/July before things change.

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