Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter


Stock Market Bulls Vs. Bears, Who’s Winning Wall Street’s Biggest Battle?

Stock-Markets / Stock Markets 2010 Mar 02, 2010 - 05:38 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleJon D. Markman writes: Two big economic reports dampened the mood on Wall Street in the past week: The Standard & Poor's/Case-Shiller Home Price Index and the Conference Board's Consumer Confidence Index.

But despite what the bears would have you believe, several strong companies have shrugged such data aside and broken through to new highs. In fact, long-term, we continue to see evidence that a robust business-led recovery is underway.

Still, threats remain, and so it makes sense in the short-term to be vigilant as the bulls and bears battle it out.

Who are the bulls and the bears?

Broadly speaking there are two major forces in the investing world:

1. The larger and slowest moving group consists of long-only mutual fund and traditional pension fund managers. These are bulls most of the time because their sole mandate is to buy and hold stocks and bonds. They analyze companies based on fundamentals such as growth expectations, discounted cash flow, balance sheet strength, price/book valuations, dividend reliability, and so on, and determine which deserve more or less of the funds at their disposal. The only major variability in their approach occurs when the flow of retirement-account money directed toward them rises during periods of swelling employment or falls during periods of shrinking employment.

2. The smaller but much faster moving group are institutional money management firms, typically hedge funds but also other structures like sovereign wealth funds and agile pension funds, that trade stocks, futures and debt based on price trend and relative-value analysis. They may be either trend traders or contra-trend traders, but this is the group that tends to provide most of the variability in day-to-day pricing. These are the pros that sell heavily at resistance, buy heavily at support, and generally influence and reinforce the daily or weekly trends that we see in the charts. They tend not to have long-term opinions, and will be bulls or bears depending on how they view the short- or medium-term direction of the markets they trade. I sometimes call these players "the Syndicate." I am in contact with a lot of them, and thus usually know what they're up to.

When I refer to the battle between bulls and bears, I'm generally referring to the day-to-day scuffles between these two large groups. Bulls win over the long term but bears can make a lot of trouble in the short term.

It's important to note here that bears have a really hard job because the long-term direction of the market, over three centuries, is up - way, way up. So they are guerrilla fighters who can be incredibly powerful from time to time and incredibly ineffective most of the time.
Right now the bears are seizing on some of the recent economic data to advance their cause.

First, the Case-Shiller data on home prices showed that prices fell 0.2% in December for the second consecutive month. On a year-over-year basis, prices are down 3.1%. But by factoring in seasonality, since the cold winter months are slow in the world of real estate, the data suggests housing continues to find support and rose another 0.3% in the month. Overall, the home price recovery appears to be stalling somewhat.

Second, consumer confidence for February dipped to 46 compared to the previous reading of 55.9 and the consensus estimate of 55. The expectations sub-index, the leading component of consumer confidence, fell a whopping 13 points to 63.8 as households become less optimistic about income growth, employment, and business conditions. We are well off of the 80-level that in the past has been consistent with economic growth.

The current conditions sub-index dropped into the teens - edging closer to the lows of the early 1980s. Only 6.2% of respondents described current business conditions as good. Only 3.6% described jobs as currently plentiful; while 47.7%, up 1.2% from last month, described them as hard to get. Overall, as you can see in the chart above, consumer sentiment has fallen back to levels reached early last year. This obviously isn't great news for retail spending.

So is moribund consumer spending enough to derail the recovery? Or will falling confidence torpedo a heavily damaged housing market?

Evidence suggests these fears are a bit overdone.

A Breakout for the Bulls?

People can tell surveyors whatever they want - but the real test is whether they are spending. And according to retailers likeHome Depot Inc. (NYSE: HD), Lowe's Cos. Inc. (NYSE: LOW), and Macy'sInc. (NYSE: M), consumers are opening their wallets. At least, they were late last year.

Home Depot swung to a profit in the fourth quarter on renewed interest in home improvement projects. The same trend helped Lowe's post its first year-over-year quarterly earnings increase in seven quarters. One interesting factoid: Kitchen-cabinet sales increased for the first time in three years. This is as strong a sign of confidence as you're going to get; people just aren't going to splurge on new cherry wood cabinetry if they're worried about losing their home or their job.

The bounce back in consumer spending will come in fits and starts - with current quarter results dampened by the terrible winter weather in the eastern states. As a result, worries over the consumer, sovereign debt, and higher interest rates are just some of the troubles that will pull at the heartstrings of investors over the coming months. The result will be a grinding, high volatility move sideways in the stock market that we expect to last at least through the summer.

Long-term, we continue to see evidence that a robust business-led recovery is underway. Industrial production has increased at a 9.7% annual rate over the past seven months, according to the ISI Group. That's the fastest initial seven months of a recovery we've ever seen. In 1975, production expanded 7.4%. In 1983, production expanded 6.8%.

As corporate earnings increase, spending on equipment increases, employment increases, and consumer spending eventually increases.

Digging into the numbers reveals the magnitude of the economic rebound that is underway. The annualized growth rates are eye popping. Semiconductor equipment orders are up 646%. Raw steel production is up 89%. Machine tool orders are up 113%. The number of oil and gas drilling rigs in operation is up 86%. Heavy truck sales are up 75%. And railcar loadings are up 22%.

So after six to nine months of choppiness, the bull market will have a chance to get back on track and we can begin to make new progress in that long-term DJIA chart.

Who's Leading the Pack?

It's very useful to see which individual stocks and groups are leading on weeks like this, because they reveal where money is being put to work no matter the broad-market tumult.

Among the more interesting new highs recorded last Thursday wereLiberty Media Capital (Nasdaq: LCAPA), one of a group of odd but large show-biz business entities controlled by the former owner of Tele-Communications Inc. This company holds a mixed bag of assets including the Atlanta Braves, a handful of Midwest TV stations, a home video distributor, live-action TV production and online newsletters about knitting and scrap-booking. It's one of a growing list of consumer-oriented companies that are busting out to new highs and in the process shaking the conventional wisdom that consumers are broke.

Also jumping out to highs were several specialty finance companies that provide debt financing, includingNewStar Financial (Nasdaq: NEWS), which has popped to close to $6.50 a share from $3 in December. Along similar lines, I'm very intrigued by the potential atCIT GroupInc. (NYSE: CIT), which has just emerged from bankruptcy and also provides specialty financing. Another in this vein that you should watch isCapitalSourceInc. (NYSE: CSE), which fell to $1.50 a share from $22 during the credit crunch in 2008-2009, and is now at $5.75 just barely emerging from a seven-month-long base at $5.50.

And finally, as I noted, there were a bunch of retailers continuing their hot streak, including the surprisingLimited Brands (NYSE: LTD), which is like in a world of its own this year, rising steadily to $22.56 after selling for as little as $10 last July.Ross StoresInc. (NYSE: ROST) sped out to a new high, as did TJX Cos. (N YSE: TJX), another discount retailer.

The bottom line: Discount retail is red-hot, and still dirt-cheap.

Can the Bulls Overcome a Resurgent Washington?

Indeed, if there is an obstacle for the bulls to overcome right now, it's the government - not the consumer.

On the political front, U.S. President Barack Obama continues to pursue a tougher, more pro-active approach to health care reform legislation. Last week, he unveiled his own health reform legislation in response to the lack of progress in the Congress. He then proposed giving the federal government power to limit increases in health insurance premiums.

Should these efforts resurrect Obama's legislative agenda, it will blunt stocks' advance. They may not stop stocks; but they will slow progress. Wall Street prefers government gridlock, not sweeping changes to major portions of the economy. A victory for healthcare reform would increase the chances of climate change legislation being enacted this year as well. As a result, bears will have a field day as stocks in the energy and utility industries will likely come under increased scrutiny and selling pressure.

Overall, the narrative here is a government transitioning from an extremely supportive role for business (stimulus, tax cuts, low interest rates) to one that is more restrictive on activity (increased regulation, higher taxes, higher interest rates).

Remember that two weeks ago the U.S. Federal Reserve for the first time since 2007 raised one of the many interest rates it controls, and is on track to stop its direct purchases of mortgages within the next few weeks. All of these could combine with new trouble for bondholders in Europe and increased money tightening in China to be the catalyst that keeps a lid on bulls' agenda over the next nine months.

But if the correction did end in February, as the bulls believe, I really hope it does not take policymakers' eye off the ball in terms of creating lasting financial reform to ensure that the underlying cause of the 2008 financial crisis is blunted.

At the moment, I'm afraid, financial leverage is creeping into the system far more ominously than I would have expected - and if it's not curbed by law, it will make the next bear market much worse than the last one.

Credit analyst Brian Reynolds on Thursday put this issue best in recording his distaste for the fact that health-care reform, as glacial as it has been, is progressing at warp speed compared to financial industry reform. He points out that the financial crisis was generated by a simple cause: Too much leverage among bank and individuals that was exacerbated by the misuse of credit derivatives.

You would think that at least as much attention would be put to limiting and controlling leverage as the White House wants to restrain health insurers. But Reynolds points out that the truth is not a single proposal put forth so far is likely to limit the growth of leverage. In fact, every measure relating to credit is nothing more than pablum so far.

Indeed, the strongest change so far is the steering of some credit derivatives toward clearinghouses rather than the over-the-counter market. Reynolds observes that this would not only not limit leverage, but perversely it will likely mean that leverage will hit new heights.

Why? Because ''the appearance of safety that the clearinghouses provide make people more willing to add leverage, and to create new unregulated forms of leverage, such as loan derivatives,'' he says. Reynolds sees the next round of investment bank rocket scientists using corporate loans as the foundation for new collateralized debt obligations.

Moreover, with its new rules that curb a form of short-selling, regulators at the Securities and Exchange Commission (SEC) have actually made it more likely that bearish investors will use still-unregulated credit derivatives markets to put pressure on companies, which will lead to more "out of the blue" corrections that stun equity investors with their ferocity. Beware.

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules