We quoted Ned Davis in Friday’s commentary. He has a full interview in Barron’s today.
Ned is always worth reading; He has a consistent model driven by the supply and demand equation. Most importantly, he looks at a variety of quantitative indicators which provide additonal insight into the Supply/Demand question — beyond mere price.
Here’s the ubiquitous excerpt:
“We’re at a very interesting juncture. The fundamentals have gotten very bullish. Conventional wisdom says maybe there is some geopolitical risk, but based on the fundamentals, the outlook is clear-cut bullish. The thinking goes that more good earnings and a clear upturn in employment will be the trigger to get us above 1200 in the S&P 500 and remove any final doubts about the sustainability of the economic and earnings expansion.
For a contrarian, that’s the worst news there can be. The problem is when there are no doubts left, everybody is pretty much invested. Our own polls of sentiment indicate 68.1% of investors are bullish, which is well in the extreme-optimism zone, and that tells me some of the demand has been used up. At the same time, we’ve been watching the previous-week offerings data in Barron’s, a combination of initial public offerings and secondary offerings, and that is up to $64.7 billion in the past 13 weeks. I can’t say there is a magic number, but it was at $55 billion based on a 13-week average at the April top in 1998, which was as high as it ever was outside the bubble years. This is a lot of supply. These are the problems: There is too much optimism. There is no doubt left about the economy, and that’s a problem on the demand side. And on the supply side, the offerings bother me.”
As always, good stuff from NDR.
Sources:
Contrarian Jitters
Barron’s MONDAY, APRIL 19, 2004
A master technician sees a yellow light flashing
http://online.wsj.com/barrons/article/0,,SB108215678443785333,00.html
