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"Where all think alike, no one thinks very much." -- Walter Lippman Strong earnings reports helped push the Dow Jones Industrial Average to new highs last week. The index pushed above 12,000--its ninth record high in just two weeks, according to Yahoo! Finance. The rally has left bearish investors grumbling like beachgoers who chose to stay home on a sunny day when the weatherman predicted rain.
Some of the questions investors are faced with these days are: Is this going to be a runaway bull market or is the market topping out? Is the economy slowing down; will it be a hard landing or a soft landing? Inflation is dead, or is it about to reignite? Are stocks are expensive or are they cheap? Are you confused by it all? What is one to do, chase the hot stocks, go short anticipating a decline, hold on to what we have and hope for the best?
To answer these questions we have to keep a close eye on the changes in the markets. One key change we saw last week was the change in bullish sentiment by corporate insiders vs. individual investors. At a time when individuals are becoming more bullish about the market's prospects, we are seeing corporate insiders becoming more risk averse by selling shares of their company's stock.
In its latest weekly report, Vickers noted that among stocks traded on the NYSE, corporate insiders sold 6.50 shares for every share purchased, compared with a ratio of 3.02 the prior week. The 8-week average for NYSE/ASE listed stocks is now 3.94 and rising, with an 8-week ratio of 3.39 for the Nasdaq. Insider selling isn't a very precise indicator of near-term market action, but has a decent record of preceding flat or declining markets, often with a lead-time of several months. Insiders tend to be right, but smart insiders are often early in their decisions to prevent accusations of acting on inside information.
Another sign of change in sentiment came from the American Association of Individual Investors which shows bullish sentiment among investors at the highest level since the market's May high. Overall, indicators of sentiment are elevated enough to suggest either a flattening of returns or a potential correction, but it's difficult to take them as urgent warning signals.
| Returns through 10/20/06 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
0.4 |
12.0 |
17.5 |
7.0 |
5.4 |
7.0 |
| Nasdaq Composite |
-0.6 |
6.2 |
12.5 |
7.0 |
6.7 |
6.7 |
| Standard & Poor's
500 |
0.2 |
9.6 |
16.0 |
9.3 |
4.6 |
6.8 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly.
Three-,
5-, and 10-year returns are annualized. Assumes dividends are
not reinvested.
HOW DO I PROTECT MYSELF FROM IDENTITY
THEFT? Many people use shredders to dispose of old bills
and credit card offers, as well as financial, insurance
and healthcare information. While shredding sensitive documents
before you discard them is a good idea, it's not enough.
Identity thieves have lots of ways to collect your personal
data. Here are some techniques to be aware of:
- Dumpster diving is pretty self-explanatory:
They'll steal your trash. Be careful what you throw
away.
- Shoulder surfing is eavesdropping on transactions
that occur in public places like teller windows and retail
checkouts.
Ask anyone who is standing too near to kindly give you
some room.
- Phishing is impersonating a bank, financial institution,
or other organization by sending e-mail requesting personal
information or account verification. Don't click
on the links in these e-mails or verify your account
information.
Call the financial institution directly.
- Pharming is
redirecting website visitors. Hackers use viruses to
direct you away from the website you want to visit
(your bank, for example) to another website that resembles it.
Before you enter your ID or password on a site, check
to make sure the web address (URL) is correct. Also, browse
the site. Fake sites rarely have many pages.
If you suspect your identity has been stolen, order a copy
of your credit report. Accounts opened by an identity thief
should appear on it. It's a good idea to check your
credit reports once each year as a precautionary measure,
anyway.
If your identity has been stolen, contact
the fraud department of any of the three major credit bureaus
and place a fraud
alert on your accounts. Let the police know and file a
complaint with the FTC. The FTC has a database of identity
theft cases.
If you would like to learn more about identity theft and
how to protect against it, visit the FTC web site at http://www.consumer.gov/idtheft.
Weekly Focus -- Here is a problem for you.
What comes next on the following list?
(HINT: It may take a week to
figure this brain teaser out.)
Sun, Moon, Mars, Mercury, Jupiter, Venus, ______
Enjoy!
Best Regards,
Ken Ford
P.S. Please feel free to forward this commentary to family,
friends, or colleagues.
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