Is the Bull Market Over, or Are Stocks Cheap?

I am a news junkie.

I think that’s fairly apparent to readers from the weekend linkfests. And, despite the fact that I have warned in the past that reading the news is hazardous to your investment returns (see Lose the News), I do occasionally like to Use the News — but for other reasons.

I find it quite interesting to see how different financial publications respond to market turmoil. Sometimes, it can be incidentally revealing of the psychology of the moment.

Consider these two articles: One is a Bloomberg piece which came out over the weekend, and the other is on the front page of the WSJ.

The WSJ article is a balanced look at two different schools of thought regarding last week’s action.  Its starts by asking "Is the bull market over?". However, it outs itself by describing the Dow’s 4.23% sell off as "stock-market carnage." Students of market history will derisively  snort of a four percent weekly drop as carnage.

Here is an excerpt:

"There have been some signs of a roof forming lately. Markets have seen a series of records, with big stocks beginning to lead the way and fewer stocks showing gains. When the Dow industrials hit their record just above 14000 on July 19, many second-tier stocks didn’t join them; indeed, after a strong start, small stocks are down for 2007. Meanwhile, money managers who were skeptical for much of the past year showed signs of greed, setting aside doubts and jumping into the market.

At the same time, until last week, middle-size stocks had been holding up better than small ones, and the gradual topping out hadn’t gotten very far. Financial, consumer, telecommunications and health-care stocks, as well as real-estate stocks and utilities, all had turned down, but technology, energy, basic materials and industrial stocks all were holding up well. Market interest rates had risen, but not heavily. Moreover, even after last week, the Dow’s worst in more than four years, the index remains up 6.4% in 2007 and 18.2% in the past 52 weeks."

The author, E.S. Browning, manages to raise many technical and fundamental issues without taking a stand on either side. It is a nuanced, balanced piece, characterized as lacking any shrill emotional elements.

The Bloomberg article is far less balanced:  It starts by claiming "Investors are preparing to snap up shares of telephone, health-care and computer companies after last week’s $2.1 trillion global stock market rout left U.S. equities the cheapest in 16 years."  The key identifier to the tone is this quote: "The window for buying is starting to open." 

The rest of the article mostly quotes bulls, who say the market is cheap. The one note of caution is  Ryan Beck’s market strategist Kevin Caron. He is "defensive” and plans to keep 35 percent of his clients’ assets in cash.

My takeaway from both pieces — alternatively neutral or bullish — is that neither reflects any sort of mass fear or panic. They are relatively bloodless  columns; no one is running around with their "hair on fire."

It may only be anecdotal, but neither of these suggest capitulation.


Finally, consider this unscientific WSJ online survey: About an equal number of voters expect a big rebound as a big decline (18/17%). While 36% expect a small bounce back, almost as many (29%) expect a small decline or a sideways week.   


courtesy of Online WSJ

My wholly unscientific read of this poll — lets call it anecdotal evidence — is that there is hardly the sort of rampant fear one associates with a true and lasting bottom . . .


Bottom line: Watch for the market bounce, keeping a close eye on volume and breadth.


Analysts Debate If Bull Market Has Peaked
For Some, Charts Warn Hurricane Is Forming; Will Storm Pass Over?
July 30, 2007; Page A1

Cheapest Stocks in 16 Years Entice Investors   
Lynn Thomasson and Eric Martin
Bloomberg, July 30 2007

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