|
Financial Post
Friday October 18, 2002
William Hanley whanley@nationalpost.com
Expect
Better Than Expected
And why Bob Hoye says you can buy stocks now.
Stocks did better than expected yesterday following IBM's better-than-expected earnings results after the close Wednesday were augmented by a better-than-expected report on U.S. housing starts and some more better-than-expected profits reports before the open.
Not everything was better than expected: Last week's U.S. initial jobless claims were higher -- or worse -- than economists expected. But, overall, expectations are being nicely exceeded. While there have been some high-profile misfires, such as Wednesday's Intel-triggered retreat that interrupted the rally at four days, the nod-and-a-wink corporate earnings guidance for analysts is working, well, somewhat better than expected.
And so the Dow Jones industrial average tacked on another 239 points yesterday, closing at 8275 -- just before Microsoft delivered better-than-expected earnings, which are likely to give the market yet another boost today to maintain the rally and send traders home happy for the weekend.
Our old pal
Bob Hoye, who runs Institutional Advisors out of Vancouver, doesn't spend too much time following earnings, whether they are better than expected or not. But his technical analysis and historical reading of the market has been compelling enough recently that he's been telling clients they should buy stocks, that this rally could run to Nov. 7-12, with one pullback along the way.
Not that
Hoye is a bull or that he's saying the bull market has begun, as are some bold analysts who are convinced last Thursday's intraday low was "it" -- the absolute low. No.
Hoye, the market historian who has called the end of the bull market and the progress of the bear remarkably accurately, is saying the market now, as represented by the Nasdaq composite, is looking remarkably similar to the market in October, 1931, in the wake of the 1929 Crash, when the Dow was the speculative index. And the financial markets have been playing out on a very similar timetable to that following the Crash of '29 and that of 1873.
The Dow, to the low on Oct. 5, 1931, fell 77% from the 1929 high. The Nasdaq, to the low of Oct. 9 last week, fell 77% from the March, 2000, high.
The Dow took off in October, 1931, rising 36% by Nov. 9 that year.
Hoye is calling for the market, especially Nasdaq, to do likewise now, continuing the rally that began last week, albeit choppily. The rough targets for the indexes are the 20-week moving averages, which on Nasdaq is 1480 -- 208 points above yesterday's close of 1272.
Hoye reckons that the market will roll over after the rally ends in that Nov. 7-12 period, making for the unmerriest of Christmases and most probably bringing a new low early in the New Year.
Under this scenario, stock prices are likely to climb until March, then retreat once again as the bear market continues.
Hoye says this bear market will last longer than the 1929-32 version because the housing market has held up longer than might be expected, helping to shield investors and keep the economy going, and the credit distress created by the bursting of the market bubble has not been as bad as it could have been.
But the inevitable has merely been postponed. He expects the housing market will succumb to credit distress, as will the auto market, which has also been kept artificially strong through use of zero-percent financing that has robbed sales from coming years.
For now, though, traders should be able to help themselves to more equity gains before this party ends in November, according to
Bob Hoye's call.
"We've been saying you can buy the dips," he says. And it goes without saying, you can sell the rallies.
|
