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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Amelia Carhartt who wrote (38602)	1/30/2000 2:16:00 PM
From: Benkea	Respond to of 99985

Shepler Capital Management: January 31- February 4,2000 The Last Sound a Bubble Makes... In last weeks update we wrote: "We remain bearish on the prospects for the stockmarket in both the short-term and the long-term. Important tops tend to occur within 1-2 days of options expiration, so we are on alert for an important high in this timeframe. Now that the majority of hyped-up 4th quarter earnings are behind us, we feel that the market must again turn it's focus to the interest rate front. This change in focus should result in some major heartburn for bulls." We contend the the market did indeed see an important top this week, within 1 day of options expiration as we had warned last week. Monday's (1/24) trading saw a key daily reversal in the NDX high flyers. Continued selling pressure throughout the week also produced a key reversal on the NDX weekly chart, and barring a record setting rally this Monday the key reversal pattern will also be present on the monthly chart. Bears currently have several elements in their favor, most notably valuation extremes, extreme euphoric sentiment, and restrictive interest rate trends. About the only argument in favor of the bull camp was momentum, momentum, momentum. After this weeks technical damage even the momentum is now turning in the favor of the bears. So the bulls appear to be left without a leg to stand on. And it appears that the market will have to fall quite a ways before a leg to stand on will reappear. Despite the recent sell-off bullish complacency still appears to be relatively unshaken. So, things will have to get much uglier for the sentiment picture to again turn in the favor of the bulls. Also, with the latest economic data showing inflationary threats growing the Fed should remain in a tightening mode for at the major part of this year. So, not much chance for any support for bulls on the interest rate front. Finally, based on the Fed's own valuation model the market is some 60% overvalued, so there is not much support coming from the valuation front. While it is still early on in this bear-leg to determine downside targets we would not be at all surprised to see a trip back down to the 10/98 for the major indices. This would amount to a nearly 35-40% drop for the Dow [That's a Dow of 7150 basis 11,000 - GU] Dow and SPX from their all-time highs, and a 70% drop in the NASDAQ [That's NASDAQ 2600 basis 4000 - GU] . While many might think these predictions extreme, these magnitudes of declines would still NOT VIOLATE KEY LONG-TERM BULLISH SUPPORT LEVELS. In other words the market could fall to these levels and still not end the bull market that began in 1982! Now if we really are witnessing the end of the secular bull market that began in 1982, then Katie bar the door because the destruction of wealth will be mind-boggling. We remain heavily short, concentrating most of our shorts in the tech bubble. We continue to sell into all short-term rallies.

To: Amelia Carhartt who wrote (38602)	1/30/2000 3:12:00 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 99985

Susan, rates really don't matter...what matters most to the market are apparently the FOMC's back-door liquidity additions, or the lack thereof. i have always been highly critical of the whole share buyback issue, especially if, as is the case, it is done using debt. normally corporations should make use of elevated stock prices by raising capital via equity, not retiring equity in favor of debt. it's extremely illogical and can only be explained by the current manic climate... note that a great many of the practices currently so beloved by WS will go out of the window once the party's over. ever wonder why the Japanese bear market has been so prolonged and deep (aside from the obvious problems of Japan)? it's to a large degree due to the practices that serve to drive prices higher during a bull market having the opposite effect during a bear market. to stay with buybacks, like you say, the share price may well fall, but the debt on the balance sheet unfortunately remains... i know, in the new era, debt is like oil...it just doesn't count.<ggg>