Remember the "No Fear" tee shirts that were popular with teenagers over a year ago? Well it seems that investors have latched on to the "No Fear" attitude in the stock market. After yesterday's 174 point selloff on the DJIA, investor fear is non-existent. In fact, the put/call ratios as measured by the VIX-VXO on the S&P is still registering optimism. On the flip side, short interest on the NYSE has climb to levels not scene since June 2003.
All in all, our sentiment indicators are telling us that we may have some more work to do on the downside before the stock market can reverse and go higher. The Dow suffered its steepest loss since September 22 as the price of oil climbed to over $51 per barrel.
As is the case during most market peaks, Oil and Metals were the best performers during yesterday's selloff. Oil rose by almost three dollars per barrel as colder-than-normal weather raised demand for fuel. Shares of gold companies rose after the Bank of Korea said it plans to increase its non-dollar reserves. In other words, they don't want to invest in the dollar.
Cyclical stocks continue to come under profit taking after Home Depot earnings in the latest quarter failed to surpass expectations. This morning, HD biggest rival Lowe's beat forecasts for the fourth quarter but warned investors for a lower-than-expected outlook for 2005. We took profits on HD last month. This adds to our opinion that cyclical stocks need to be prunned from your portfolios, and replaced with Non-Cyclical stocks like Coca-Cola (KO Buy Limit $45), and selected Heathcare stocks.
My best guess is we will see our lows for the quarter sometime in March. What will be the catalyst for the market to go lower? Who knows? How about $60/bbl oil?
