Schaeffer says the Nas is less vulnerable to a first half decline and the following italicised and bolded extracts from the same article may be connected to that "forecast"
Dissecting the data from the 2003 forecast a bit, we find that of the 65 prognosticators with Dow forecasts, 25 saw the Dow closing out 2003 above 10000 and just five saw the Dow below 9000. This is a remarkable statistic, given that the Dow was in the 8500 area when these forecasts were being developed. And how many of these 65 saw a declining Dow for 2003 – a close below 8500? Three.
He doesn't give a corresponding comparison of Nas forecasts, but my assumption is that he doesn't see the Nas being held up to such a high expectation.
Why, you might ask, am I focusing here on the Dow Jones Industrial Average? For two reasons. First, it is the "headline index" that most investors use as a proxy for "the market." And second, the .INDU has outperformed other major indices in recent years to such an extent that it is not out of the question to refer to a .INDU relative-strength chart as a "bubble."
Below is a chart of the 14-year relative strength of the .INDU compared to the S&P 500 Index (SPX). For the past 20-plus years (including a period that predates this chart), the .INDU's relative-strength line has fluctuated above and below a mean relative strength value of 100. So at its current value of 125, the .INDU is 25 percent higher relative to the SPX than its "norm." Must the .INDU revert to its mean, and, even if it does, must this occur in 2003? No and no. But it is clear to me that the .INDU is the most vulnerable of all the major indices, and that it is likely to "lead" the next market leg down. And on this next leg down, it would not be unreasonable to expect the .INDU to give back half of its current excess relative to the SPX, which would amount to as much as 1,000 points of additional .INDU downside.
Again, no direct comparison to the Nas, but reading between the lines you can assume that Schaeffer doesn't see such excesses in the Nas. I would have liked to have read an analysis fromSchaeffer on the Nas that went into the same level of detail, but imagine the unbrevity that would have resulted!
I see the biggest cap names in the Dow and the S&P as being most vulnerable to major declines. Many of these stocks have attracted "safe haven" money due to their large capitalizations and liquidity and the illusion of safety. But I see these names as being "first out" of institutional portfolios on the next market leg down. These include Pfizer (PFE), 3M (MMM), Procter & Gamble (PG), Citigroup (C) and General Electric (GE).
The above is more of his reasoning of why the Nas may not suffer, and by extrapolation I am assuming that when Schaeffer says the Nas is not as vulnerable, he means the Nas comp - by virtue of his relative bullishness for small and mid caps. Again extrapolating and assuming, I think Schaeffer would be very bearish on the Nasdaq 100 due to the large caps it is concentrated in.
Personally, my shorting will be focused on the Nasdaq 100 index once we see more signs of excessive bullishness. And we are nearly there looking at Investors Intelligence and number of stocks above 10 DMA.
