Bernie Schaeffer: Before The Champagne Is Popped...
12/7/2000 5:51:07 PM
Today marked the second consecutive down day on the Nasdaq Composite (COMP – 2727.9). This sobering reality comes after Tuesday's record-setting session where for one brief moment all was well. However, it may not yet be time to pop the champagne corks.
On Tuesday, the COMP moved over 10 percent higher as a couple of key court rulings favorable to Governor Bush moved the Presidential election closer to finality, and a mid-morning speech by Federal Reserve Chairman Alan Greenspan hinted of a softer interest-rate stance. One thing to remember about bear markets, however, is that one-day pops are a cornerstone of these markets.
Fundamentally, various technology companies in diverse areas continue to warn of softening earnings. Today's warning du jour was wireless company Motorola (MOT – 16-13/16), who said they would fail miserably at meeting analysts' earnings expectations for at least the next two quarters. Yesterday it was Internet company Scient (SCNT – 2-7/8), a stock that was trading around the 133 mark in March. Tuesday, it was box maker Apple Computer (AAPL – 14-3/8), whose stock has fallen from an all-time high of 75-3/16 less than nine months ago. On Monday, networker 3Com (COMS – 9-1/2) and semiconductor Xilinx (XLNX – 43) warned of falling profits. It will be very difficult for the COMP to rally convincingly with daily bad news shocking investors back to the reality of the slowing economy.
From a technical perspective, there are many obstacles to be overcome for the COMP's rally to stick. First, the COMP is still below the 2900 mark. This level is important because it is approximately the site of the COMP's overhead 20-day moving average, a trendline that rejected the index during Wednesday's session. The COMP has not managed even so much as one close above its 20-day trendline since moving below it on November 8. Additionally, the psychologically significant 3000 mark is just overhead. 3000 also almost exactly defines the 50-percent retracement level of the decline from the COMP's early-November short-term top at 3480 to last week's low of 2523. Significant retracement levels often serve as resistance to thwart a trend's attempted reversal.
Additionally, sentiment continues to be very optimistic For example, the Schaeffer's put/call open interest ratio (SOIR) on the Nasdaq 100 Trust (QQQ – 67-7/8) stands at 0.46, near its lowest level in history. This indicates that in the first three month's option series, there are more than two open call positions for every one open put position. We interpret this type of overwhelming optimism on a downtrending index bearishly.
- Bernie Schaeffer |
