ZO, isn't this convenient. Maybe, just maybe he wrote this in response to your BS. Read it once, read it twice, then read it again. Maybe you'll get it.
A Fake Tech Rally
By James J. Cramer
1/10/01 4:43 PM ET
You want to be more constructive about tech. You want to
say, "These stocks are down so low that I think they must be
done going down." And, most important, you want to believe
that the "action" is positive and therefore begets better
action.
I know the first thought -- that they are so low that they are done going down -- has some
credence. John Roque put together a terrific piece about the Nazz that I thought echoed
this thinking perfectly. There are signs of improvement on the macro front. Last week, the
junk market opened up after the Fed's action. That kind of money does end up with the
Ciscos (CSCO:Nasdaq - news - boards) and the Lucents (LU:NYSE - news - boards) and
the Nortels (NT:NYSE - news - boards).
We know it is bullish; we just don't know how bullish for tech (on the other hand, we do
know how bullish it is for financials and retail). And I think that some of tech has fought to
bottom. The semiconductors "act better." For what that's worth. (It is worth quite a lot for a
day or two, but then not much at all.) I also respect the notion that if you own no tech, you
have to start buying. Remember, though, I am a big believer that NDX 1500 isn't going to
occur and I think that we are groping for a bottom in the Nazz at the 2000 to 2100 level.
However, I think the ramp we got in Wednesday's trading was illusory. I know the way the
game works all too well. Much of the buying today is pure short-covering. Let me explain
how it works: Many funds like to make giant bets for or against the Nasdaq. They buy puts
on the Nasdaq or the MNX (that's the Nasdaq "mini-index"), and they then wait for the
selling to begin. When Cisco's Chambers didn't put a rosy scenario on tap, these
short-sellers figured, oh boy, let's press our bets. There was a giant wave of put-buying
when Chambers guided people down. Then, well, then, nothing happened. Oh sure, lots
of sellers of Cisco came into the market. Seems like a sizable chunk of the company
traded and is being placed into hands that don't seem so panicky. But the rest of the
market didn't collapse.
Now, picture the short-term nature of these put buyers. They can't have a rally on their
hands. They need supply to develop. They need large sellers to materialize, and
materialize almost immediately on Cisco's "bad" news. It didn't occur. So, the
short-sellers then sell their puts or they go in and buy common stocks of their faves
against the puts. Next thing you know you have a rally.
Why don't I think the rally is "real?" Because I think if hedge funds hadn't gotten short
ahead of today's action, we wouldn't have had a rally. We would have had nothing.
Remember the mantra: For tech I want two things: for supply to be in balance with
demand in the stock market, and for business starting to look better at the companies.
Today we saw the former: a short-term glitch in the market in which there were more
buyers than sellers because so many people bet against the market, hoping for a quick
decline to profit from. That's the short-squeeze you saw into the bell.
However, the latter thing is not happening. In fact, we know from Cisco today that things
got worse, not better, of late. We need both demand and better fundies to sustain a rally.
For those of you looking for a silver lining, I offer the same one I always do: When the Fed
cuts, you can't stay short. I think these shorts will continually have to cover as the Nazz
doesn't break down. But tech doesn't rally big when the Fed first starts easing. And the
recession, if there is one, is just hitting tech with a vengeance.
That's why I like these other groups that I keep talking about more than tech. A smart
reader out of Chicago I correspond with told me he is telling people who are long-termers,
"Look, take some tech, like Cisco, off the table into these rallies. You will probably get a
chance to buy it lower."
I can't disagree. There are too many nonbattlegrounds out there -- witness the incredibly
strong and predictable action in the brokers and the banks -- that I don't want to be caught
in the cross-fire of the NDX, even if I think the downside is getting more and more limited
with each expected Fed cut.
Random musings: Enjoyed signing the new TheStreet.com book at Barnes & Noble
today. Hope to see you next week at Borders in downtown Manhattan (5 World Trade
Center, at the corner of Church and Vesey streets). If you can't wait until then to read it,
don't! |
