Tuesday, September 30, 2008

Thinking about buying this dip?

By Helene Meisler
RealMoney.com Contributor

I'm not writing the following to scare anyone and I'm not writing it to be dramatic. I am writing it because I kept hearing folks who in the interest of being calm were telling us what great opportunities there were to buy stocks Monday. I kept hearing "for the long term" and how if you'd bought the low in 1987 you'd have made a fortune. So let me share with you what I saw in that photo from nearly 21 years ago. Keep in mind that these were the stocks to watch back then.

General Motors
(GM - commentary - Cramer's Take)closed the day down $16 to $50. GM is currently trading around $9. Ford Motor (F - commentary - Cramer's Take) closed that day at $69, down $15 on the day. Ford is trading with a four handle last time I checked.

OK, so you want to scoff because they are auto stocks? Note how I didn't bother to mention that Chrysler isn't a public company anymore. So let's look at some of the tech stocks that were deemed important back then.

Prime Computer. Who? That's right. I can't even remember what happened to that company. Unisys (UIS - commentary - Cramer's Take) is still around although it now trades with a two handle. At the low of the crash of 1987 it was $30, down $7 on the day. Digital Equipment was IBM's (IBM - commentary - Cramer's Take) biggest competitor then. DEC, as it was called, actually traded about 25 cents shy of $200 during the final week of September 1987. On the day of the crash it closed at $130, down $42 on the day.

DEC was eventually bought out in the late 1990s. I can't recall the exact price but something in the $60s rings a bell. And no, that price isn't split adjusted. It was bought by Compaq. Oh yes. I'm sure you remember Compaq which got bought by Hewlett-Packard (HPQ - commentary - Cramer's Take) for peanuts I recall!

The list of brokers and banks will bring back memories too. E.F. Hutton, Salomon Brothers, Chemical Bank, Chase Manhattan Bank. Manny Hanny as we called Manufacturers Hanover Trust. Bankers Trust was there too. It took me a few minutes to realize that GS on the screen back then was not Goldman Sachs (GS - commentary - Cramer's Take) but Gillette, the razor company.

But the one that really shocked me was Kodak (EK - commentary - Cramer's Take). I had forgotten what an important stock it was. It was in the Dow Jones Industrial Average back then. It closed the day down $26, at $63. It is currently a teenager.

There will be great bargains when this decline is done. There will be great stocks to buy. But whoever tells you what a great opportunity XYZ stock is today clearly doesn't know that the market rotates its favorite names, its favorite groups. I have often said that last year's winners are rarely this year's winners. Well, we can expand that to say something a bit more general: The winners of today are rarely the winners of tomorrow and I believe this trip down memory lane from 1987 proves that point.

Monday was ugly, and it felt a bit panicky too. The VIX jumped. The Index ratio zoomed over 200%. Volume was relatively high as well. So we ought to get an oversold bounce shortly but I can tell you that I would rather be late to the party than early in this case. I've given the market the benefit of the doubt lately by ignoring the intermediate-term indicators and their continued down-trending ways. They were clearly sending us a message and I will now wait until they tell us it's safe to go back in the water.

For more explanation of these indicators, check out The Chartist's primer.

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