Bill Cara: McManus speaks, Tues., July 18, 2006, 8:34 AM

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July 18, 2006

McManus speaks, Tues., July 18, 2006, 8:34 AM

Tom McManus of Banc of America Securities is the Wall Street (New York) strategist I respect most. He was early to call the commodities boom, and the market weakness. Now he provides an opinion as to the bottom of this Bear market.

Speaking as a guest host on CNBC today, McManus opined that the S&P 500 index has further to go on the downside. Rather than call a cycle bottom, he stated that if the S&P 500 dropped from 1234.50 at present to 1150, which is a -7.0 pct decline, he would become neutral on the market.

McManus said he would go positive (i.e., over-weight equities) at 1100 on the S&P 500, which is a decline of -11.0 pct.

In terms of the Dow 30 Industrials, a -7 pct move would drop the index to 10000 and -11.0 pct would drop it to 9550 from its present level of 10747.

I have long ago called a cycle bottom at 8800 on the Dow. But if the Accumulation zone " as I interpret it based on Relative Strength " starts at about DJIA = 9550 and S&P 500 = 1100, then I know there will be great values existing in probably one-third of the Cara Global Best 100 Companies, and so I will be recommending those for long-term accounts.

There is a focus today on war in the Middle East. A month ago the focus was on North Korea. The month before that it was Iran.

If you look at your notes, you will see there has been a series of these geopolitical conflicts going back for generations. These are important events, but traders need to be focused on prices and the primary drivers of those prices, one of which is economic data.

Minutes ago the U.S. Producer Price Inflation (PPI) data was released and as expected the numbers are rising. Higher costs serve to slow the growth of the economy. That is the primary reason why equity prices are reverting to the norm, and below.

I'll write about this later.

Posted by Posted by Bill Cara on July 18, 2006 08:34:12 AM | Category: Cara Today in the Market

Discourse

Bill and others -- I'm a bit surprised at the relative strength of the dollar this week. Bill was it you who blogged recently that you expected it might go as high .84 euros during this cycle?

Also you mentioned that the central banks would be selling gold. Any additional thoughts on that given recent volatility?

Or are the markets simply being roiled by the various recent geopolitical crises?

TIA

Posted by: number2son at July 18, 2006 12:45 PM [link]

the tape that won't get off the canvas.

in boxing, it is easier to knock someone out late in the rounds, after their legs are weak and they can't see clearly.

i always think the same thing about a market that is weak and near the point of breaking which we are (short term critical supports @dow 10,700 and spx 1228?). we are either forming a bear flag on the daily and hourly charts or we are forming a small base from which we will get an oversold bounce. whatever it is going to be, it is coming right up because if you look at the hourly chart, we have essentially done nothing since friday at mid morning and in this market, a tight range does not last long.

in this kind of environment the bounce could be rather sharp and dramatic. if this is a bear market, however, the quick dramatic rally will only serve to weaken us and prepare us for further declines.

the hour grows nigh.

Posted by: mtzion at July 18, 2006 12:58 PM [link]

mtzion..

great observation and I agree wholeheartedly....

appears the market is being held....

when this breaks its ugly

Posted by: maggy at July 18, 2006 1:16 PM [link]

Hi:
Are there any 'bear market' products eligible for retirement accounts? Any help would be much appreciated.

Posted by: WEE at July 18, 2006 1:32 PM [link]

thanks maggy.

unfortunately for me, i have been positioning for the oversold bounce so if we don't get some traction here, it's stop out time. short term, there are some pretty high stakes on the table and preservation of one's capital is something near and dear to my heart.

Posted by: mtzion at July 18, 2006 1:33 PM [link]

So the question today is. Where's the next support level?

And the unanswered question from last week, when we get there, are the miners still an attractive gold play anymore in a bear market.

Posted by: rusticuf at July 18, 2006 1:40 PM [link]

WEE, you can use both inverse mutual funds (http://www.profunds.com/profiles/inverse.asp)and, more recently, ETFs (http://www.proshares.com/funds).

As others here have wisely pointed out, read the literature thoroughly before making a decision as there are unique risks involved in this type of investment.

Posted by: number2son at July 18, 2006 1:46 PM [link]

Miners and energy seem to be moving with the $ (more or less)....both have got to be getting attractive, especially when you consider our present circumstances.

I agree again with mtzion....a lot at stake and
presevation of cap essential...I was waiting for the bounce but held my nose and went short the Dow at 11,000...so far so good, but it always depends on when you look.

Is someone going to get Basic Points from BMO?

Posted by: maggy at July 18, 2006 1:51 PM [link]

Re:
"Are there any 'bear market' products eligible for retirement accounts?"

IMHO, In this current trading environment, if you are a conservative investor: Money Markets and Certificate of Deposits (>= 5% per annun).

More adventurous? then Consumer Staples (i.e. defensive stocks) such as (Pepsi (PEP), Coca Cola (KO), McDonalds (MCD), Staples (SPLS), Colgate-Palmolive (CL),etc. Do your research, this is a downtrending market so all bets are off the table.

However, if you're young at heart and foresee a 100+ year lifespan (a reasonable possibility nowadays), then Hansen Natural Corp (HANS),or TETRA Technologies (TTI),or Oceaneering International (OII)! (-:

Posted by: oratier at July 18, 2006 2:32 PM [link]