Technology does not look attractive
Marder favors heavy cash position
By Kevin Marder, CBS MarketWatch
Last Update: 4:05 PM ET Aug 11, 2000 NewsWatch
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LOS ANGELES (CBS.MW) -- The deterioration of the past three weeks within the aggressive-growth universe has robbed the intermediate-term trader of numerous potential buy candidates.
Yes, there are some names that remain in good shape technically, such as Ariba (ARBA: news, msgs), Extreme Networks (EXTR: news, msgs), I2 Technologies (ITWO: news, msgs), Interwoven (IWOV: news, msgs), and Sanmina (SANM: news, msgs).
But the decay in a bevy of growth issues, among them Applied Micro Circuits (AMCC: news, msgs), Avanex (AVNX: news, msgs), Ciena (CIEN: news, msgs), Micromuse (MUSE: news, msgs), Network Appliance (NTAP: news, msgs), Sonus Networks (SONS: news, msgs), StorageNetworks (STOR: news, msgs), Stratos Lightwave (STLW: news, msgs), Sycamore Networks (SCMR: news, msgs), Tibco Software (TIBX: news, msgs), Verisign (VRSN: news, msgs), and Virata (VRTA: news, msgs), telegraphs a distinct message.
That message is that technology is not attractive enough technically to warrant the attention of the trader seeking to capture gains of a few weeks to a few months.
Specifically, too many breakouts from sideways basing patterns are not following through, let alone following through on strong volume.
Network Appliance is one example of this "failing" behavior. A stock must break out of a base and stay above that base for it be considered a bona fide leader.
Meanwhile, the Nasdaq Composite has shown a number of down days accompanied by rising volume, also known as distribution.
Will the Nasdaq take out its May 24 low of 3,042.66?
Focus on the market's dynamics
Successful intermediate-term traders will spend less time trying to forecast that possibility, and more on understanding the dynamics of the current market.
Those dynamics -- increasing distribution (professional selling) in the Nasdaq, breakdowns in the individual leaders, and a disdain for good news -- augur for a heavy cash position for those that specialize in aggressive-growth stocks.
The good news is that the strong showing by the financial sector indicates the market is expecting a more favorable interest rate environment over the next six months or so.
And given that the ideal environment for growth stocks is one of falling Treasury yields, this development suggests the erosion in many growth names may be closer to an end than a beginning.
As usual, however, the trader should let the market itself be the ultimate barometer. He or she will look for a shift from distribution to accumulation (increasing volume on up days) in the Nasdaq as well as the rebuilding of basing patterns by many tattered growth stocks.
Until then, the risk-to-reward ratio favors a heavy cash position.
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