Why stock market showing greatest ever divergences between indices?
Samuel Johnson
May 16, 2007

It is typical of an ending cyclical bull market within the secular bear market. A lot of money is floating in the hands of a few – thanks to US Administration and its policies. These so call ‘newly created filthy cash rich’ do not know what to do with their money. When you ask a novice to invest in stock market who is nervous as hell, the most like placement of the money will be in the blue chips. Novice investors with a lot money are afraid to lose it all in over the counter of Nasdaq stocks.

Believe it or not, Dow industrials rose 37.06 to 13383.84, yet another new record. But other major indexes fell, unable to sustain an early rally sparked by tame inflation data. Simply put, the hedge funds with unbelievable cash in their pockets are buying anything they feel is attractive. Edward Lampert's hedge fund has bought more than 15 million shares of Citigroup, currently valued at over $800 million. Even these private equity and hedge funds are buying Chrysler. They are eying Ford and even GM.

It’s the buying spree without any understanding of fundamentals that is causing the market to go up primarily in Dow Jones Industrial Average while sup par advances (if any) in Nasdaq.

The new dividend law has made the stock market a fools paradise. These cash rich few investors are buying dividend rich industrial sticks thinking they are equivalent of tax free municipal bonds.

That is the main reason for gigantic divergences. We sent the divergent data into some complex analytic computation. The result is scary. Larger the divergence and higher the complacency, larger and longer is the bear market. It may take some time before these few so called newly recognized rich are fully invested. But when they do, the bear market will be spectacular – ten time more severe than 1929-33 debacle. Well plane tickets to Europe and Asia will still be available for these hedge fund managers and private equity holding companies.

Why stock market showing greatest ever divergences between indices?
Samuel Johnson
It may take some time before these few so called newly recognized rich are fully invested. But when they do, the bear market will be spectacular – ten times more severe than 1929-33 debacle.
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