"The Economy and the Markets at Mid-Year"-Tim Hayes of Ned Davis Research & Mark Leibovit of vrtrader.com
Friday, July 03, 2009PAUL KANGAS: So is a new bull market underway or has the rally of recent months been just a temporary move in a bear market? To weigh in on that question, joining us now from Tampa is Tim Hayes, chief market strategist for Ned Davis Research and joining us from New York is Mark Leibovit, chief market strategist at vrtrader.com. Welcome gentlemen.
TIM HAYES, CHIEF MARKET STRATEGIST, NED DAVIS RESEARCH: It's a pleasure to be here.
MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VR TRADER.COM: Thank you.
KANGAS: Tim, let's begin with you. Ned Davis Research has declared the recent bear market a waterfall decline. The big question now, is it over and is a new bull market underway?
HAYES: Well, the waterfall decline essentially ended what we'd classify as a cyclical bear market and following that waterfall decline, really high volume panic stage back in October. We've had several retests of the lows on diminished participation and finally, on the March lows in the major averages, that was the final bottom and subsequent to that we had enough evidence to call this a cyclical bull market and that's where we are at right now.
KANGAS: Mark, last New Year's day, you were the most bearish member of our "Market Monitor" panel. You predicted that the Dow would go up early in the year but would then fall back to close at 6500. Are you still expecting a big drop?
LEIBOVIT: I am, Paul. I think ultimately I don't know if it will be this year but ultimately the Dow Industrials is going to give up 90 percent of its value in the next several years, so I'm pretty much a bear. Now over the near term, we can -- as we did in the 1930's we could see a 50 percent retracement of decline which gets you up to about 10,300 which is 1100 in the S&P. So that's a possibility here in the months ahead and I'm a short short seller. "Money" magazine had a bull on its cover just on June 19. So I think we're probably at or near short-term highs here, a pull back and then maybe another rally try before the waterfall decline resumes. So we are trading it and actually looking to get short right here.
KANGAS: So I take it that you don't share Tim's view that we are in a cyclical bull market?
LEIBOVIT: Not at all. I think that this is just a reflex rally and you know, there's a lot of manipulation going on. You've got the plunge protection team out there, a lot of things people don't want to talk about, but the Fed is out there wrestling with it, trying to get this market up and I think it's a temporary affair. We have lower measurements even right here at about 7500. So I wouldn't be surprised in the next month or two we get down to those levels first.
KANGAS: Now Tim, do you see any signs that the uptrend in the market is running out of steam?
HAYES: Not at this point. We'd have what you'd expect in a cyclical bull market. In fact this has been one of the -- it's been very similar to 1974, 1975 recovery and that we only had a 4 percent correction over the first three months. That's exactly what happened in 1975 when you were up 34 percent, the same amount that we had during the first three months of this cyclical bull market. So we have seen a normal consolidation recently but at this point we have good solid participation, good breadth numbers, no signs at this point that we're getting to that vulnerable point.
KANGAS: So what kind of stocks do you recommend to take advantage of this cyclical bull market? We just have a half a minute.
HAYES: Well, we're staying with right now the energy and materials are good areas to be in, also consumer discretionary and technology. I think materials and energy, once we have more confirmation that the recession has ended, we'll have more sustainability and then later down the road as we reach the end of the cyclical bull market, we look to more defensive areas.
KANGAS: Mark, since you see a multiyear decline on the horizon, what should investors do now?
LEIBOVIT: As I told you in the previous interviews, Paul, I'm very much a gold bug. I think you need to be in gold as a defensive play. And I see gold running up to that 2500, 3000 area in the next couple three years, whether it's deflation or inflation. So that's where I think investors should be. I don't think they would be in equities. I think this is a very tenuous period that we have entered over the next several years.
KANGAS: Tim and Mark, I want to thank you so much for your differing perspectives on the outlook for stocks. My guest Tim Hayes of Ned Davis Research and Mark Leibovit of vrtrader.com.
