To: Mannie who wrote (8104 ) 10/15/2000 12:08:16 PM From: Mannie Read Replies (1) | Respond to The positive earnings news was instrumental to pulling the Nasdaq
off the bottom near the May lows. Negative earnings are still with
us with Lucent warning for the third time in three months proving
that cheap stock prices on previous high flyers does not always
mean value. DoubleClick and Yahoo! also announced but the tone of
their announcements hammered their stock prices as well as other
Internet stocks. The explosion you heard was the Internet advertising
balloon bursting and the companies that depend on advertising
revenues for their lifeblood will be self destructing soon.
The prospect of continued good earnings are great and the announcements
will start in earnest on Monday. Some of the big companies that will
announce next week include INTC, MSFT, AAPL, EMLX, ITWO, PPRO, TLAB
and dozens of others. Rumors that MSFT will guide analyst expectations
lower with their earnings announcement was holding the stock price
down when the Nasdaq was soaring on Friday. Goldman Sachs came out
and said absolutely not, Microsoft is posting strong revenue increases
with Windows 2000 coming on strong. We will see who is right this week.
With the Nasdaq posting a +242 point gain, the 2nd largest percentage
gain ever and the third largest point gain ever, you would think
all fears of future selling were over. Advances on the Nasdaq beat
decliners by 2:1 but the margin on the NYSE was much narrower at
only 4:3. Another disturbing number repeated by network commentators
all day was the new high/new low ratio on the NYSE with 161 new lows
to only 19 new highs. Only one stock hit a 52 week high in the S&P-500,
GD. On the Nasdaq there were 323 new lows and only 21 new highs.
Come on guys, the market has been in the tank for six weeks which
means that most stock prices have dropped. If it took six weeks to get
here it may take more than one day for them to get back to new highs
again. The new low numbers may also be related to continued tax loss
selling from mutual funds. With tax season for funds already upon us
they are selling the losers to offset the winners and reinvesting
that money into new stocks.
The new number one market prognosticator, Abbey Joseph Cohen, and
head cheerleader for Goldman Sachs, came out with her carefully
scripted call that the S&P was now 15% under valued. That does not
take a mathematics degree to determine. The S&P was "fully valued"
in her opinion at 1525 in August and at Thursday's low of 1325 it
was -13.5% off her "fully valued" number. Abbey Cohen does not go
out on a limb, EVER, and carefully scripts her interviews with more
catch phrases than Alan Greenspan yet her words are treated as gospel
in the current media environment. Go figure! How much faith does it
take for a long term investor to feel comfortable buying stocks at
Nasdaq 3000 or Dow 10000 with the Fed on hold? Not much. Still it
makes good advertising for Goldman Sachs and that is the name of
the game. More important to the market was her call that the S&P
should reach 1575 by year end. That is +25 points higher than the
March high of 1550 and +200 points from here. January SPX calls
anyone?
So was it Good Friday or October Fools Day? The VIX spiked to almost
37 on Friday, a level of volatility and fear not seen since April.
Both major indexes rebounded off support levels not seen in months.
The Nasdaq came within 10 points of the May low for the year of 3042
and the Dow came within 15 points of the psychological 10000 level.
If this was not at least a short term bottom then I would be really
surprised. The market gurus were claiming that there was really no
capitulation on Thursday. Excuse me? TrimTabs.com said the first
three days of the week was the largest outflow of cash from equity
funds they had ever tracked. $9.7 billion was moved from stocks
and into money market accounts. Tens of thousands of investors were
calling their brokers and bailing out of stocks. The numbers for
Thursday are not yet available but you can bet that number climbed
significantly. This is real capitulation. When retail investors
run for the sidelines the bottom has arrived. That was Thursday.
On Friday one analyst reported on CNBC that they were receiving
a record number of phone calls from institutional investors asking
if they thought Thursday was the bottom. We even had brokers calling
us at OIN asking if we thought Thursday was the bottom. This tells
me there is a ton of cash still waiting on the sidelines for the
"October bottom." Because of the nine one day bear trap rallies
we have had since September 1st, everybody is very cautious about
jumping back in to the market on any one day bounce. Not wanting
to be October fools and buy too soon they will eventually fund the
longer term rally once we have confirmation of the event. At Nasdaq
3000 everybody wants to believe it was the bottom. This is an
emotional event and may not be reality. After all who wants to see
Nasdaq 2500? Not me!
I want to believe! I want to lead the charge out of the depths of
the sell off. I also want to be the voice of reality and caution.
How you react to the facts is up to you. The Nasdaq rally was
great but the Dow regained less than half of the almost -400 point
drop on Thursday. 10200 proved to be a top all afternoon. This
could have been simply money moving out of Dow stocks and into
tech stocks but it is still a concern. The Dow has strong resistance
at 10300, still 110 points away. This may keep the Dow from making
any serious gains in the near future. On the Nasdaq traders said
there was not really a lot of buying, just no real selling. Any
investor that has been in the market for any length of time knows
that buying good stocks when everybody else is selling is the way
to make lots of money in the market. However, these same investors
don't want to lose fingers catching a falling knife. Now we are
faced with the proverbial high noon standoff. Bulls against the
bears, buyers vs sellers. Is it the bottom or just a blip in a
longer term trend? With many good stocks down -50% from their highs
investors are faced with a dilemma. Buy now and ride out any further
dips or wait for confirmation of the rally and be faced with paying
much more for the same stocks. I think the answer most investors
and funds will decide is buy now. How much farther can CSCO, INTC
and other mainline stocks fall? Not much! The me too stocks may
still have more to go but with stocks like DCLK, down from it's
recent high of $135 to only $12, they too cannot drop much farther.
The economic conditions are ripe. The Fed is on hold and 95% of
the bond dealers are forecasting the next move to be a cut to cushion
the soft landing. 70% are forecasting that to be this year. Oil is
still the wild card but with the announcement on Friday that many
major dealers are not going to export any more heating oil to
insure adequate supplies at home the price dropped over $1 at the
close to only $34.10. While Saddam Hussein may eventually hold
back his oil as leverage for future negotiations it is not likely.
He needs the money to rebuild his war machine which the U.S and
Britain are still bombing on an almost daily basis. More importantly
the high oil prices have accelerated the rush to discover, develop
and deliver new oil to market. Every day we get closer to those
new discoveries coming to market. The OPEC nations do not want
this to happen and will eventually do something to lower prices
and discourage new investments into new development. The GDP is
still growing at a very strong rate and the earnings this week
are likely to show that things are not as gloomy as everybody has
been predicting. The Middle East summit in Egypt, aimed at stopping
the violence, is scheduled for Monday. Both sides will be pressured
to stop fighting and save face by big political names. Bush is ahead
in the polls and drug stocks as well as businesses in general are
likely to benefit from his election. Consumer spending as evidenced
by the Retail Sales report is still strong and even the higher oil
prices have not put a serious dent in this segment of the economy.
Where is the beef? Where is the gloom and doom in our future? I
don't see it. Sure certain stocks will continuing falling but it
is a company specific issue or in the case of the Internet an
advertising revenue issue. The Internet is not going away. This
is simply the process of maturity taking place on a very visible
scale. If your Internet stock is dropping, pick another stock that
isn't. Sound simple? It is. This same principle will continue
driving the broader market into the Fall rally. Some stocks go
up, others go down. October is when the losers get booted out of
portfolios and winners get voted in. Now is the time to pick
winners for the rally ahead. Whether it is this week or a couple
weeks later the facts are simple. The economy is thriving and
stocks will also. Go buy something! This is expiration week and
volatility may be extreme but it is normally a bullish factor.
There may be profit taking from the astronomical gains on Friday
and there may be another dip or two. Consider them buying opportunities,
you can bet the traders in cash on the sidelines after the big gains
on Friday will be buying like there is no tomorrow. You should be too!
