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

To: Zack P who wrote (68497)	2/3/2001 9:33:31 PM
From: Square_Dealings	Respond to of 99985

"On Friday, a huge down day for both indices, new highs on NYSE and Nasdaq continue to dramatically exceed new lows. Can any offer a reason why this divergence is happening and venture an opinion as to what this portends for the future of the markets? "" It's a stock pickers market from here to eternity. There will always be excellent companies and opportunities even in a major correction. That is the beauty of the free market system. M.

To: Zack P who wrote (68497)	2/4/2001 1:29:25 AM
From: lurqer	Respond to of 99985

New highs/new lows can be a very long leading indicator. I remember huge new lows in spring of '99 and it could've earlier as I was distracted from the market in the winter of '98/'99. So perhaps we have a harbinger of this coming fall. lurqer

To: Zack P who wrote (68497)	2/4/2001 9:22:43 AM
From: Les H	Read Replies (1) \| Respond to of 99985

Savings & Loans, Super-regional banks, and smaller regional banks were up. There are many of those on the NYSE as well as the Nasdaq. Many of them don't trade more than 50K shares daily.

To: Zack P who wrote (68497)	2/4/2001 2:37:20 PM
From: Doug	Respond to of 99985

ZacK: This is a bear market for certain sectors ; notably Techs and sectors that depended on the wealth effect gains from the stock market. Because of cheap money, vendor financing and pool accounting, many Tech companies and Telecom/NSP service companies over expanded during the last 5 years. Because of their close relationship to the dot.coms , tech stocks joined them in an inflated spiral.. The dot.com revenue and income model was based on virtual reality into the future. The TECH valuations were based on PEG's and forecasted growth. Towards the end of last year, investors realized that such valuations are speculative and cannot be sustained fo the long haul. The current valuations of the majority of Tech. stocks are still high because of the drop in earnings. This earnings drop has occurred because of of one or more of the following: a: Lower demand and excess Inventory both inhouse and at the Contract manufacturers. b: Overcapacity both of design and production. c: Pricing reduction due to oversupply; d: Diminishing returns in productivity and dollar gains per unit High tech investment. e: Lack of any major disruptive technology. The old economy stocks on average now have more stable earnings . Many of them are at new highs because they have better fundamentals and profit visibility than the TECH stocks. The divergence between the two will continue untill the valuations of the NAZ drop to more rational values commesurate with earnings and those earnings become more transparent . In brief, the divergence you observe is based on earnings and nothing else. It will be better to measure the average P/E's of the stocks making new highs vrs the average P/E's of NDX stocks on the NAZ. Yyou will find that the NAZ valuation is still higher. If the market is to result in a fair valuation, this anomaly has to be corrected. The only question is when.?