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MARKET COMMENT
By
Carburton Street, London -- Nobody can regularly call market peaks and bottoms. However, anecdotal evidence can sometimes help make a reasonably accurate judgement. Hark back to March 2000 and the peak of the TMT bubble. When the Queen cashes in on a speculative investment boom, when investors are scrambling for sure-fire flotation winners, and when notorious stock market bear Tony Dye gets the sack, you know investors are in for a tough time. But after eighteen months of stock market declines, are there any anecdotal signs of a recovery ahead? In my view, there are a few pointers that signal a stock market U-turn. For starters, there's the general outrage and hullabaloo surrounding widespread short-selling. But more significantly, rapid share price falls have prompted the FSA to adjust its solvency requirements for insurance companies and the Nasdaq to suspend its minimum $1 stock price requirement. While I've long considered the continued popularity of shorting to be a bullish sign, my upbeat view is enforced by the relaxation of various stock market regulations. You see, both regulatory reviews were prompted by "exceptional" market conditions. However, by their very nature, "exceptional" conditions don't last too long. For instance, it's worth remembering that during March 2000, the rules concerning diversification within unit trusts were altered. At the time, Vodafone (LSE: VOD) made up nearly 15% of the FTSE 100 -- a sitiation caused by a somewhat "exceptional" overvaluation. The change came to primarily rescue index tracking unit trusts, who were previously allowed to invest just 10% of their fund in one share. Of course, no sooner had the regulations been altered to solve the unit trust dilemma, Vodafone shares quickly slumped and the problem disappeared. And with that in mind, I suspect the recent problems faced by the FSA and Nasdaq, alongside some "exceptional" stock market undervaluations, will promptly vanish too. More: Calling the Top?