Stealth Bears

Stealth Bears or
Is the bear market over yet á là Kudlow/Cramer Analysis?
by John O'Donnell, CEO
Online Trading Academy
September 11, 2003

I have been observing the bull market in the Nasdaq, Dow, S&P 500 index, and the global market indexes, including Japan's. I have noted that they all seem very positive to date in '03.

See the following table of indexes for year-to-date confirmation:

Index	Percent increase
Nasdaq index	up 38.74 %
Dow 30 index	up 14.7%
S&P 500 index	up 16.65%

The public mood of "Joe" is rising to proclaim, “The bear is dead”, and buying the general market ... "and may the ol' bear rest in peace!" Right??!!!!

Well hang on, sports fans, we have some "Perry Mason circumstantial evidence rising in the back row to admit guilt” in this year’s trial. This “witness” is announcing that maybe the secular bear is not dead - as my basket below will show, they have had anemic performances year to date. I have observed these sector big cap leaders (you will all know the big cap names very well). I put this “basket” together without any special weighting or timing built in. It is just a portfolio at random to give us another view of this "bull market" since 2 Jan '03. Let’s say we invested $100 into each of the 17 diversified positions below. This then equals $1700 total invested on 2 Jan '03. I did this to look at a different angle at this “bull” market because I still smell “bear”. It maybe a Stealth Bear I smell, but it is no bull.

Here’s the Value of each well known company which started with a $100 position as of Sept 3, 2003:

Company	Price
American Intl Group	$103.90
Pfizer	$104.60
Schwab	$104.00
Sony	$84.00
Anheuser	$100.40
Vodafone	$101.30
Microsoft	$109.50
SBC	$94.70
Proctor Gamble	$103.20
Johnson/Johnson	$93.50
Altria	$103.20
Exxon	$109.00
Merck	$94.55
Coca Cola	$99.30
At&t	$85.00
Eastman Kodak	$85.20
Dupont	$105.30
Total	$1680.60

Total portfolio: $1680.60 net asset value today 3 Sep 03, and remember most mutual funds own these names in major concentrations.

So, $1700 was invested in the above portfolio on 2 Jan '03 minus $1680.60 net asset value today ø this is a loss of $19.40 or -1.1%. This is the real "stealth bear market" that the CNBC pundits are not discussing on Kudlow and Cramer.

These are major sector companies with the best balance sheets in their space on average, and top management. These guys are losing 1.1% while the Dow is +14.7, the S&P’s are + 16.65 and the Naz is + 38% - This is a very cold s-h-o-w-e-r for their customers, vendors and stakeholders. It also sends a bold message to the rest of us who hope the bear is dead ø this is certainly not confirming to me yet, that this secular bear is buried!

As a side note: In the 1929-32 crash/deflation (a 86% decline), we had 6 bear market rallies of 24% (on average) during that collapse. We have had 5 similar bear market rallies since March 10, 2000 to today ø are we due for another? (See Figure 1.1, courtesy of Elliott Wave International)

Figure 1.1 What do these Multinational Companies all have in common?

1. Pro-forma earnings, not Core earnings announced, and no expensing of options by most of the above
2. Big pension obligations, many under-funded
3. Outsourcing to China and India for information technology work and downsizing
4. Anemic Cap-Ex budgets, big layoffs but higher productivity
5. Sector and gross margins under pressure from global deflation and commoditization of products/services with tight margins
6. Massive surplus capacity in the sector.

Is the Bear dead….or is it just Stealthy? I'll let you and time be the judge.

Yours for p-r-o-f-i-t, c-l-a-r-i-t-y and f-r-e-e-d-o-m,

John O'Donnell
CEO, Online Trading Academy
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