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Markets & Stocks
Analyst: Two-thirds done
August 28, 1998: 11:39 a.m. ET

Minervini says global sell-off shows just how safe American markets are
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NEW YORK(CNNfn) - With world markets continuing to plummet, many investors are worried about what the global sell-off will do to the usually strong U.S. market. Mark Minervini, chief investment strategist of Quantech Research Group, appearing on "Business Day" before U.S. markets opened Friday, indicated that the downturn may not be over.
     Here's a partial transcript.

DEBORAH MARCHINI, CNN ANCHOR: Are you surprised to see a signal this morning of a five point increase in the S&P futures?

MARK MINERVINI, CHIEF INVESTMENT STRATEGIST, QUANTECH RESEARCH GROUP: No. We looked at the stats, and every time the Dow Jones went down 3 percent or more on a closing basis, as it did yesterday, and found that 96 percent of the time we made an intra-day low the next day, and 68 percent of the time we closed up for the day. So it looks like we should make a intra-day low today and then close up for the day.
     JOHN DEFTERIOS, CNN ANCHOR: And that's a head fake, you say. It's going to give us a flash in the pan, a little bit of a rally, but nothing sustained. You're not ready to go back into this market for at least for three weeks, you say up to 12.

MINERVINI: Well, I think that two-thirds of the damage is probably done. But then again, I wouldn't want to try to catch an 800-pound safe falling out of a window.
     So I don't think that investors need to pick an exact bottom to profit from the upcoming move upward. I think we have to wait a little bit and let the market bottom out.

     MARCHINI: You picked pretty close to an exact top on July 26. You went 100 percent into cash.

MINERVINI: That's correct.

     MARCHINI: OK. Are you still sitting on that cash, or are you redeploying any of it in U.S. equities right now?
     MINERVINI: We're sitting basically on a 100 percent cash. There are a few stocks that we bought a little tiny bit of. Microsoft(MSFT), Home Depot (HD), Apple Computer (AAPL) -- I think these stocks will do well, along with Cisco (CSCO) and Wal-Mart (WMT), and maybe Walgreens (WAG). A retail drug group looks good right now. It's holding up very well.

     DEFTERIOS: Can the U.S. market provide the leadership that's necessary? Obviously, you see the selling in Asia spilling over to Europe again.
     Everybody is going to look to Wall Street today to provide that floor. The bond market is providing that safe haven. Can the stock market do this act of turning things around globally?
     MINERVINI: Well, contrary to what most people believe, I believe that the Russian situation and all this turmoil around the world is actually good for the U.S.
     It once again highlights the relative safety of the U.S. markets and the bond market. And the money flowing into the bond market and the Treasury bills to bring our interest rates down will probably offset the slowdown from Asia. So I think it could turn out to be a positive.

MARCHINI: That's a longer-term picture though. Shorter term, what are the risks that investors like hedge funds, who have positions elsewhere and are taking losses, now will have to liquidate U.S. stocks and bonds in order to cover margin calls, or to cover their losses.

MINERVINI: Well, I think with the market down 1,400 or 1,500 points, there's been a lot of liquidation already. So I think that we're probably two-thirds done with the damage.
     And anybody who got caught in this, you know, obviously, I can't speak for them. But I think a lot of damage has been done. There is an enormous amount of damage that's been done in the small cap area. You got the Russell 2000 down 25 percent. It's clearly a bear market.
     MARCHINI: Would you be buying small cap stocks at this point?

     MINERVINI: I would wait. I think when this market bottoms, I think the big caps are going to lead. The franchise, the name brand stuff are going to lead once again, but there is a lot of value in the small caps, it's just that it has to be perceived, and right now, that perception has not become reality.

DEFTERIOS: Mark, there's a very uncertain picture about what's going to happen to corporate profits going forward here. 3M (MMM), for example, pointed to the fact corporate profits will be up.
     But for the second quarter, for the first time in a decade, they were down. Can we bounce back with this external shocks to our markets with corporate profits?

MINERVINI: Well, as far as 3M is concerned, I can't comment on that. But I can tell you that there have been about 3,000 IPOs in the last five years. And 1,100 of them are growing over 30 percent a year on a two-year growth rate.
     So I think there's this tremendous growth in the U.S. You know, it's with the young entrepreneurial companies, a lot of technology companies. We lead in all the areas of technology, telecommunications, computer software, computer peripherals, medical technology, and the rest of the world wants to emulate us and have our products. And I think the U.S. is in really good shape. Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.