Zeev's Turnips Patch-No Politics (ZEEV)

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Keep This Market in Proper Perspective

By Cody Willard
RealMoney.com 2/24/2005 3:00 PM EST


Market Commentary BULLISH
Many observers want to cast the year aside, but it's still a long way from over.
There are an increasing number of reasons to feel bullish here.
Sentiment, M&A and rotation are just a few reasons to be more constructive here.




What a year! But wait, it's only late February. We've got a nice long 10 months left, representing about 80% of the year's trading days still to come. So let's keep some perspective.

I keep hearing and reading about how the markets are all but destined to pierce through the "lows of January". The more literary analysts proclaiming such a future might consider using the old Shakespearean warning, "Beware the ides of March". I'm just not so sure it's so clear-cut. Frankly, as I watch some of my favorite stocks, which have come down big time in the last few months, decline even more in the last couple weeks, I'm getting increasingly bullish.

I've been pretty darn cautious on the broader markets for the last few months but I'm getting less so now. To be clear, though, far from pounding the table as I was last summer, I simply see a lot of places that I want to start to put money to work and I think there are more than just a couple reasons to get more bullish now:

1.Sentiment: Sentiment has really taken on a bearish tint in the last few weeks. The permabear syndicate is finally getting its groove back and is getting much more aggressive on the short side. The shorts have certainly been "paid" so far this year, as favorite short stocks like Pre-Paid Legal (PPD:NYSE - commentary - research) and Overstock.com (OSTK:Nasdaq - commentary - research) have taken big hits. The beta-hater shorts have also been coining money as highflyers like Juniper (JNPR:Nasdaq - commentary - research) and Research In Motion (RIMM:Nasdaq - commentary - research) have been trashed this year too.


2.Lower prices: Rev Shark had a fantastic piece Wednesday about the relative safety that some traders find in buying stocks on their way up. I think it depends a lot upon one's timeframe and style as to whether buying high and selling higher works. I certainly employ some of that strategy in my trading, but I like to invest by buying weakness. Lower prices in Tekelec (TKLC:Nasdaq - commentary - research) and Juniper have me much more excited about scaling into those names again, rather than looking to scale out.

3.Corporate spreads and M&A: There's just so much capital available to companies out there right now. With corporate spreads at ever lower lows and the low absolute rates out there, I expect to see lots more share buybacks and M&A activity. Tech stocks in particular don't reflect the strong vote of confidence that bond holders are giving the economy and earnings power.

4.Rotation: Energy and commodities have obviously been the strong outperformers so far this year. I certainly wouldn't try to time finding a top in those plays, but when the air does start to come out of the sector (both in a short-term swing phase and, at some point, in a cyclical decline), tech and telecom will benefit from all the many momentum traders rotating away from energy and commodities.
Throughout January I kept