The 1998 low culminated with the blow-up of Long Term Capital Management (LTCM). Emotion was running high during this period, and while leadership stocks were considerably strong, especially in terms of relative strength, sentiment in the investing community was resolutely negative.
The material is poorly archived, as it was published pre-Blogger and with a password-protected site. I'm typing-up these now because I am using the material on a related work.
The Contrarian is based on Dostoevsky's Notes from Underground.
Thursday October 15, 1998
It's uncanny, really. I can't remember a time the Dow rallied 300+ points and folks seemed so little pleased. Where are the happy campers? Where is the goofy celebration that normally caps such a momentous day? I'll tell you reader, I recognized pain - real inexorable pain out there by the end of the day. Skepticism for sure, but more significant was the pain this explosive rally seems to have created. These people are absolutely unhappy, in disbelief, or worse - they're bloody SHORT!
Okay, it's not the majority who are short here, but I'll tell you there is angst out there. This is the most disappointing huge day on Wall Street I've ever seen. Today was the 3rd biggest point rally ever in the Dow and yet there's a kind of despair out there. I'll tell you what it is. It's the sorry fact that investors, long-term investors no less, sold out of their portfolios in a panic last week and missed today's explosive, foolish rally.
It's terrible, really. To have held onto their portfolios through all that pain, right through to the end last week when it was finally clear there is some kind of problem in the world and stocks had to be sold. Only to have the market take-off again now without them, before they've had time to adjust their perceptions more positive. It's altogether unkind.
I know you think I'm being arrogant, but that's not really the case. So what if cautious folks sold out their stocks, I am the bigger fool. Yes, I may be the world's greatest fool. Perhaps you're down on your portfolio this year, and of course it would have been nice to be a buyer of quality last week instead of finally selling those loser stocks you held for so long. But look - you have a normal, respectable life compared to me. You'll bounce back. But me, reader, I am an insect. A foolish little bug. I live in a hole and I rarely (never really) go outside - I can't risk the good cheer. My biggest draw-downs, you see, my greatest portfolio disasters, have all followed periods of enjoyment and self satisfaction. I had to put a stop to that. For the sake of future gains, I had to make myself more miserable than even you!
Anyhow, we must address this incredible marketplace. This Sebastian of growth. This depressingly large rally and its significance. Yes, my dears, it is not insignificant that the Fed did cut rates today. And that so many now are skeptical following a session whereby up-volume topped down-volume by a nine to one ratio. Indeed, this is confirmation now that one, this market bottomed last week (Root Canal Bottom), and two, it is going much higher. The other day I mentioned I must be the biggest bull on Wall Street. After today's rally, and with all the cautious forward forecasts, and continual questions of liquidity crisis' and looming recessions, etc., I suspected I was the only bull on Wall Street. Not true, of course, but I would not put a top on this market yet, my friend. As fun as that will be, I must expect now that we will make new highs in the intermediate term, and that includes the Russell 2000! Yes, I am crazy, I have told you that. But you will hate me when the Russell makes new highs.
Tomorrow, or by Monday I should warn you, I'm going to be a net seller of stock. When I get this excited I must always lighten up - I've learned that. But I refuse to sell low tomorrow, and if the market is only down tomorrow I will go back into margin, buying more stock instead. In fact I hope they sell-off early tomorrow, at least. My suspicion is we will, if only to allow the frustrated chorus another song: "...the buying was overdone; the rally was largely short covering and option-related activity; one had to expect stocks to cool-off." Yes, I can almost guarantee that at some point tomorrow, or at least by Monday, stocks are going to rally much higher still. Then at the point sentiment shifts from prudence, skepticism and disbelief, to where people are actually seeing bullish, I will lighten things up - for the near term at least.
These include: KNDL, PPDI, GENZ, SEPR, ENMD, INTC, ORCL, MU, YHOO, AOL, CSCO, LIPO, NEM and PDG. I'm not selling any Japan though. It will be a while before anyone likes that trade enough for me to hand it over to them.