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To: fut_trade who wrote (18851)	3/19/2000 7:11:00 PM
From: RJL	Respond to of 42523

Interesting Crash Report this weekend: The Crash Report (http://www.fallstreet.com) The Crash Report-----March 19, 2000-----------Issue # 35 Part 1 Introduction Part 2 The week that was Part 3 New Economy, Same Old Mob Part 4 Weekly Forecasts Part 5 Closing -------------------------------------------------------------------- ----Part 1---------------Introduction--------------------- Welcome members. The Crash Report is for information purposes and should not be regarded as investment advice. What I try to focus on in the report is the current and future psychological and fundamental state of the worlds largest equity markets; the DOW and Nasdaq. If you wish to support the web site please visit a sponsor. ----Part 2----------------The Week That Was---------------------------- The theme for last week was "Oil Top?". I focused on how there was strong evidence that oil had topped ahead of the OPEC meeting on March 27. This weeks theme is "Earnings Season Trends" Recap The Dow traded (intraday) in over a 1000 point range last week and the Nasdaq within a 572 point scope. I have never witnessed such a dramatic shift in psychology as I did last Thursday when the Dow skyrocketed upwards by 499 points on no news. What I mean by no news is that the fed wasn?t cutting interest rates, PPI (significant report) didn?t come in below estimates and no Dow company reported or upgraded earnings. Absolutely incredible. I guess it goes to show you how much capital is truly churning around in these markets. The momentum temporarily shifting from the Nasdaq to the Dow contributed to the blue chip rally and the fact that the index had slumped over 2,000 points off its January 14 record was also one of the major reasons for the rebound. Earnings Season Trends Last week was vindictive of "earnings positioning.". Although I am bearish on stocks the trend of an earnings season rally has become too pronounced to ignore. The recent trend has been volatility followed by a rally and capped off by a downturn. This means that as companies report they seem to do so in a very bullish manner before the results are released. After the results volatility and in many cases a pull back arrives. Was Thursday an early Dow earnings rally? Not many will think that it is was, but Thursday the Dow could have entered an early earnings rally. Corporate profits for blue chips will come in strong with the exception of some consumer stocks and low margin cyclicals, which could be haunted by the price of oil. JP Morgan and Citigroup which rose last week by over 15% each will likely report record earnings, and companies like Wal-Mart and Home Depot (retail sales still strong) could do the same. The reason why earnings season is unavoidable and dangerous to bears is because regardless of stock price and any ratio you can conjure up, the fact is when companies like Citigroup and JP Morgan report blow out numbers versus last year people get excited. There is strong evidence to suggest that these earnings numbers and comparisons will not continue to increase in the second half of 2000, but inside a market which rallies off of short term momentum the drop lower in the Dow and many Nasdaq stocks may be soon over as the numbers start coming out. -- On April 5 Yahoo kicks off the trend and will probably top estimates by a few pennies. ----Part 3--------New Economy, Same Old Mob----------------- The most overused statement thus far in 2000 has been "new economy versus old economy". This phrase is based upon the idea that various blue chips (old economy) can not live up to the growth predictions of Nasdaq stocks (new economy). I disagree with the premise that the Nasdaq offers faster earnings growth than most Dow companies. If you back out the top 10 Nasdaq earnings results what you are left with is a pile of expectations and revenue increases. The real difference between the Nasdaq and reality is what investors pay for each stock, not the underlying earnings. The S&P 500 which is trading at an average P/E of 30 (10 tech stocks account for over 80% of its gains) and Nasdaq as of March 10, 2000 had an average P/E of 245.7. Does earnings justify this extreme divergence or does the insatiable investor demand for the shares? It may not be about old and new, but about "overvalued" and "insane". The main theme why Nasdaq stocks carry higher multiples is investors can trade and ride the momentum in unproven concepts and financial statements because no one has a clue? no one has a clue if Amazon.com is ever going to turn a meaningful profit, therefore the stock is worth whatever people feel like paying for it (people feel good don?t they). If you look at a Dow company like Dupont, which has strong earnings and 17% growth estimates over the next two years, the difference is clearly seen. Who wants to own a stock which is profitable and expected to grow earnings well above historical averages when they can own a "new economy" dream and at any price? Even if Dupont doubled its estimates (a miracle) the share price couldn?t do what some Nasdaq stocks do inside a session or two. -- We will see if Amazon can grow actual earnings as quickly as they gained market share in the years to come. Some obvious Nasdaq successes such as Cisco, JDS Uniphase, and Network Solutions boggle the mind when you look at what investors will pay for them. These are all great companies although it may be too optimistic to assume that buying into these "new economy" issues is a divergence from the slow earnings blue chip stocks. People buy these companies with gross premiums not because of the "new economy" but the old characteristics of mob mentality with the new economy slogan as an excuse. It doesn?t matter that the examples listed above may grow quickly over the next year, they are priced for many years of superior growth. "New" Traders New Investors can?t trade Citigroup higher by $50 a share on news that the company is going to revolutionize the financial planet, so they don?t even try. They stick to concepts, fudged revenue numbers and richly priced tech mammoths to get there kicks. This isn?t so much a commentary on the new economy versus the old, but the fact that investors want to throw darts at an 85% bulls eye over a 20% one. Thats what the Nasdaq has become....a dart board in the New Economy pub located at 6021 Insane Lane. -- Could it be that investors are looking for the next Microsoft in the land full of Iridium?s? ----Part 4------Weekly Forecasts-------------- Last Weeks Quotes: WebSite: "The earnings rally into April could be a rally back to 5,000 after these next two weeks are complete" Crash Report: "I am extremely bearish on the Nasdaq and open to possibilities on the Dow.". Quick Look: I am neutral to modestly bearish on both markets this week. Nasdaq: Three weeks ago: "There is no cause to think the Nasdaq can?t head higher in the short term but it should head down like a brick, if only for a handful of sessions, ahead of March 21." The handful of sessions arrived last week. When looking at the intraday highs and lows the Nasdaq lost 13% last week but on a closing basis only slumped 9%. There is no way to predict the Nasdaq?s action next week. Most indicators are bullish but at any given moment sentiment can churn bearish. DJIA: Last Week: "The crucial economic reports and bond pits will decide if the Dow trades lower than key support levels or attempts a range driven rally." As shocking as last week was, the Dow did perform almost as expected. Cooked PPI on Thursday did not spook anyone. Some private economists (according to James Stacks) had expected inflation to rise 4%-5% overall, instead we got a 1% rise in PPI. I am neutral to bearish next week: the bond market may be near a top, gas isn?t going to follow oils decline for at least a month, and liquidity has recently been pouring into growth sector instruments not blue chips. But once again despite any rational, the Dow can explode higher on momentum and earnings expectations. ----Part 4-----Closing Comments-------- As we near the expected Fed rate hike, earnings season and a likely rally at some time in stocks over the next month, a quote from William Fleckenstien rings loud and true: "the numbers don't matter. It's only the markets' response to the numbers that matters." Sincerely, Brady Willett