cso1- What is your view now?, page-4

Debono, you may be right, but a few observations from me may be of interest:

Capitulation - Rivkin apparently said very recently that these were the worst conditions he'd seen in 42 years. Surely that's capitulation? How about Germany falling 50% in six months and the tech spec. market being closed after falling 98%? Every man and his dog was looking to go short a few weeks ago and sentiment readings were awful (overseas at least).

Bottom picking - last year we were being warned by all and sundry that markets don't make "V" bottoms, which not only happened, but I think is somewhat at odds with the currently more popular view that (dramatic) capitulation has to take place before a bottom is in place.

http://stockcharts.com/gallery?$BPNDX picked the bottom of the market after 911, to the very day, the focus at that time being on the NASDAQ.

http://stockcharts.com/gallery?$BPINDU picked the latest bottom (the focus being on the Dow this time), at least when used in conjunction with
http://stockcharts.com/gallery?$VIX .

Top picking - the really big ones are easiest. For instance,
http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve
"Inverted yield curves are rare. Never ignore them. They are always followed by economic slowdown -- or outright recession -- as well as lower interest rates across the board."
Those conditions were met in January 2000. Just click on the "animate" button on
http://stockcharts.com/charts/YieldCurve.html .

October - U.S. fund managers have to report in October and it's a key reason why the "dogs" selling is normally so prominent in September and October, as Yale Hirsch has pointed out so often, especially in relation to tech stocks. Fund managers don't want to be seen to be holding dogs at report time. This process was accelerated last year by 911 and the subsequent patriotic fervour.

It has been written that withdrawals from funds are growing faster and that many managers will be pulling out in January, since they are so dependent on performance bonuses. However, there are contrary views as well (bear in mind that not being in a rally is a bigger sin for a fund manager than losing money for clients).

http://money.cnn.com/2002/10/17/markets/flows/index.htm

The fund-fueled rally

Never mind the fundamentals, fund managers could send stocks sharply higher by year end.
October 17, 2002: 4:16 PM EDT
By Justin Lahart, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Valuations are still steep, the economy is rocky and the prospect for real improvement in earnings is still a far-off dream.

But never mind the fundamentals: Mutual-fund machinations could put the market much higher by the time the year is out.

It's been another incredibly lousy year for the fund business, of course, and for just about every manager out there the notion of lifting into the green by Dec. 31 is pure fantasy. Many fund managers are far below their
benchmarks, raising the danger not just that they don't get a year-end bonus, but that they lose their jobs.

For managers like that, stocks' big rally off their lows of last week is a gift. The possibility that the market has touched bottom for the year, and will continue to rally, is heaven sent.

"The mutual funds are trying to make up for a god-awful performance and they're going to put whatever cash they have to work," said Larry Rice, vice president at Janney Montgomery Scott.

That in itself could keep the rally fueled. Regardless of where stocks are headed over the long term, mutual funds throwing scads of money at the market is enough to keep them rollicking higher for the short term.

"If you're a manager who's been way behind this year, this is your last chance to try and close the gap and salvage the year," said Brett Gallagher, head of U.S. equities at Julius Baer Investment Management. "So you're going to do exactly that."

To further bolster performance, such a manager is going into the stocks that tend to run the most in a rally -- things like techs, brokers, retailers and
other companies that are seen as risky in a poor market environment. That manager, already down a lot, doesn't have much to lose, according to Gallagher.

As that money sloshes into the market, other fund managers who have been beating their peers can't stand idly by. Gallagher, who's had a defensive
stance on the market, said he's had to follow the herd into stocks because he's worried about losing the lead if the market keeps running higher. He's cut his cash position to below 10 percent from 20 percent.

"We may see this thing run into year end, and we're going to have play along with it," he said. "This is a crazy, screwed up market. We may be at the party, but we're standing close to the door."

The one caveat is that a lot of those fund managers who are trying to save their years don't have that much money to play with. At the end of August (the latest figures) cash levels at mutual funds were just 4.9 percent.

If the rally is strong enough to carry through the year that might draw a big raft of money into funds in January (the big month for inflows), but Montgomery Scott's Rice doesn't think you should count on that.

"Anyone hoping for huge inflows into stock funds is going to be disappointed," he said. "When people open up their '201(k)' [a 401(k) cut in half...] statements at the end of the year, they're not going to be happy."

But the end of the year is a while away yet, and in the meantime stocks may run.

"Who's going to get in front of these guys?" said Jack Baker, head of equities at Putnam Lowell. "I wouldn't be surprised to see the Dow back up at the 10,000 level in the next three months."

...

Meanwhile, the bond market is bigger than the stock market in the U.S. and money has been pouring out of the bubble bonds market into stocks in the last week. A story the other day about $10 billion coming out of maturing bonds in Oz might also explain this blue chip rally of late.