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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 691.66

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Jan 16 4:00 PM EST

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To: Math Junkie who wrote (72742)	3/19/2001 6:38:34 PM
From: Doug	Read Replies (1) of 99985

R.P: The bubble in TECH prices based on PEG's was mainly due to overcapitalization. That bubble proved good for the general economy as workers and Investors in the high TECH created a demand for costlier goods and services. Thus , the bubble did indirectly affect a few sectors of the DOW. The general Economy though affected is fortunately steaming on fairly healthy because of near full employment. Howver, the collapse of the Tech bubble was a signal to the Old economy to start tightening their belts in anticipation that they may be next. This tightening is done by cutting down discretionary spending and staying off any Capital projects where the return on Investment is marginal. I.T projects are the most likely ones to be cancelled/postponed. This belt tightening by the General sector and the Inventory glut in the high Tech sector is the cause for the TECH profit recession.Short term Interest rates cuts will be good for the general economy. However , the general economy is not likely to revise their project priorities. That will only occur once they realise that their profit targets for 2001 are on track or have exceeded expectation. So in phase 1 we should see the Inventory glut being consumed. Those in the chain holding the most Inventory will be the worst off . That should take us to end of Sept. Thereafter in Phase 2 depending on the health of the General economy, we may see Firms willing to increase their I.T spending. In brief, a rebound in the Techs is dependent on the proven health of the general Economy. I do not believe interest rates will result in any meaningful increase of revenue or income for the Techs for atleast + 6 months.

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