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Afternoon Snack

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Good afternoon folks. If this day is any indication of what the week is going to bring get ready for a rocky ride! We have strength across the board with the XAU (Gold/Silver), XBD (Broker/Dealers), Biotech (BTK), and Semis (SOX) leading the way. The major indices all set new 52 week highs and although we have currently pulled back, in my opinion, we are heading higher.

Although the valuations and numbers are not as lofty, and the euphoria is nowhere near where it was at the end of 1999, some parallels might be drawn. The market has impressed us all year and many data points (AD Lines, volumes, buying/selling pressure) still indicate an up trend is in tact and a top could in fact, be months and months and months away.

With the best market performance in years you can bet that not only professional money managers, but also any individual investor feels anxiety about missing out on what could have been huge profits in 2003. Investor confidence is being restored and if the economic numbers are any indication, the business expansion will continue into this coming year.

In addition to the numbers that back the bull's case, we still have bears pounding the table that this market action is ludicrous. You can still walk into a store and pick up a number of magazines that will have bearish tones on the cover. Of course there are many less of these after the year we have had, but nevertheless they still exist. So the complete madness that we experienced in 1999-2000 is not back...yet.

So why is this like the end of 1999/beginning of 2000 to me? Because after a year of fantastic gains we have yet to experience a buying frenzy that would be indicative of a "blow-off" top. From the period of January to March of 2000 people bid stocks into the stratosphere until we had two catalysts which brought the market to its knees. The AOL/TimeWarner merger was the first (the market shrugged this off) and the second was the crashing of Microstrategy.

With so many possible catalysts to look forward to in 2004, any number of them could spark buying that may lead to the blow off top. Could it be an already expected rate hike? The capture or killing of Osama bin Laden? The high anticipated Google IPO? It may or may not (probably not), be one of these catalysts that will spark a buying or selling frenzy, but we can bet that it will come.

So as we head into next year with a healthy market we can bet that investors, both professional and individual, will not want to miss out on yet another year. This mentality could cause us to outperform on a significant basis in the first two quarters of 2004. Something that we did in 2000 and we all know how that ended. This is just food for thought.

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No positions in stocks mentioned.

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