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Strategies & Market Trends : Tech Stock Options

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To: donald sew who wrote (41301)	4/25/1998 7:37:00 PM
From: Robert Graham	Read Replies (4) of 58727

I like your logical and structured approach to the analysis of the market. Here are some of my observations. My brief look at the tape tells me that the funds have been moving generally into the second tier stocks, not the first tier stocks. Public monies have been moving into the first tier stocks along with other tech stocks for speculative plays like what we have seen with the Internet stocks. The public's infatuation with tech stocks apparently never disappeared, just went into hibernation for a period of time just to come out on proof of slowing revenues and earnings. The sky has not fallen yet so they are back out buying what is familiar to them which they have experienced profits from in the past. From my sample, I see that the stocks that are being accumulated by the public generally were down in their trading range but still managed to close near their open, while the stocks being accumulated by the funds generally closed up. There are exceptions like in the case of DELL which is a stock that has been strictly played by the public which did close up. Evidentally there were people in there buying on its dip in anticipation of a continued rocket launch. I think the immediate question to be asked is are we seeing the results of "normal" sector rotation, or are we seeing a prelude to a market correction where for instance the funds are using select tech stocks as a temporary place to park there money while the market is in transition like they did with the box makers just before the beginning of this bull cycle of the market. As far as this being evidence of a finished sector rotation, I do not think this is the case. I do think the funds have still a good amount of money to rotate into the market. Right now I think they have paused in their efforts. One key to this puzzle here is noting how the funds were willing to aggressively and even IMO recklessly purchase very large blocks while the stock was in a steep uptrend. This is not their standard method of operation. Funds normally cannot afford to purchase stock like this since this approach can cost them allot of money unnecissarily. In this way, they are working against themselves. Normally in a situation like this, funds will purchase during selloffs by the market which provides them with a ready supply of shares to purchase. So this activity is not a normal rotation. Perhaps the funds are rotating back into the tech sector. One question here is why they chose second tier stocks instead of first tier stocks. In any case, the fund money together with public money was launching the NASDAQ into a strong uptrend and quickly bidding up the stocks they were interested in purchasing. This approach to purchasing stock could not go on for any length of time without substantially overextending the market and the individual stocks they were interested in while substantially magnifying their costs during the purchases. So if this scenario is the case, I think the funds are waiting for prices to settle before continuing their purchases. Just my opinion of course. Bob Graham

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