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To: patron_anejo_por_favor who wrote (112276)	7/12/2001 10:24:29 AM
From: ild	Respond to of 436258

I guess Bernie is short Softie: schaeffersresearch.com Bernie Schaeffer: Microsoft Manufactures a Tech Rally By Bernie Schaeffer 7/12/2001 9:14 AM ET The expression "give the devil his due" is often appropriate in the world of trading. This means we must develop a healthy respect for the forces that may be driving the market against our position, for two reasons. First, because they may in fact prove to be "right." And second, regardless of whether they're right, they can wreak havoc with our trading performance over the short term. The immediate reaction of the market to the May 15 and June 27 Fed rate cuts was neutral to slightly negative. But in each case, the market rallied sharply the next day. Are there forces that wished to see a market liftoff in response to these Fed moves that were dissatisfied with the market's initial reaction? Are you kidding? How about all the big Wall Street firms, all the big banks, as well as the Fed itself? Were these powers at work manufacturing a rally? I don't know, but note that each of these rallies had little follow-through and proved to be shorting opportunities for the nimble trader. And then we have the very curious rally that began the afternoon before the big Kraft IPO on June 13. A weak market would have caused major problems for the big Wall Street firms peddling Kraft shares to the investing public, and late in the day on June 12 the Dow was off by as much as 144 points to 10,788. But (surprise!) the Dow rallied furiously in the final 90 minutes to close up 22 points at 10,948. This rally continued into the following morning as the huge Kraft IPO was being absorbed, with the Dow peaking at 11,004. A manufactured rally? I don't know, but note that since June 13 the Dow has never again seen 11,000 and has traded as low as 10,120. And last night, with the Nasdaq hanging on by its thumbs, seemingly destined to test its April lows, Bill Gates steps up to the plate with an early announcement of "good earnings news" that sent its shares (and the big tech stocks) soaring in after-hours trading. So it must be good news, right? After all, the headline on TheStreet.com's home page this morning screams "Microsoft Shows Why It's Still Tech Heavyweight Champ - Still swinging in tough times, Mister Softee says revenue will beat forecasts, and Wall Street loves that." (As an aside, for some reason, some reporters think it's cool to use the stock nicknames attached by the grunts on trading desks – "Mister Softee" for MSFT, "Glow Worm" for GLW, "Slob" for Schlumberger and so on. I personally find this anywhere from annoying to nauseating. But hey, I'm a contrarian and a grouch, which will become even clearer as this piece continues.) Back to MSFT. Let's stand back for a moment and take a closer look at the facts underlying this "good news" as set forth in the more sober article in this morning's Wall Street Journal. MSFT reported a $2.6-billion loss in its investment portfolio that all but wipes out its fiscal fourth-quarter profit. According to the Journal, MSFT "padded its results with investment gains during the bull market." According to Bernie Schaeffer, this means that much of what MSFT has been reporting as earnings in recent years was pure vapor. MSFT's revenue will beat forecasts. But by how much? The company says they will come in at $6.5-6.6 billion for the quarter, compared to Street estimates of $6.46 billion. So they will "beat revenue forecasts" by a "whopping" one to two percent. MSFT's earnings will meet, but not beat, Street expectations of 42 cents per share. But this is down from 44 cents in the comparable quarter last year. Schaeffer addendum: Despite negative quarter-to-quarter earnings growth, MSFT trades at a forward P/E of about 40. How convenient, as the techs are swooning to manufacture some "good news" from a tech behemoth that comprises over 10 percent of the Nasdaq 100 Index! I noted to myself yesterday that there was a strong bid for MSFT all day, and this certainly makes sense now. The key right here and now is whether this rally will prove to be as "durable" as the vapor rallies described above, or whether this will mark a potential bottom in the Nasdaq. Those of you who've been reading my commentaries in this space know I have a strong predisposition toward this being yet another vapor rally. If in fact the Nasdaq has just put in a bottom, it will mark the first market bottom in history where hope, and not fear, was the byword. But let's take a look at MSFT specifically. The shares rallied to a shade above 70 last night, but note from the chart below how rallies died in the mid-70s in August and November 2000 and so far this year. Also note from the second chart how the most recent rallied failed at the declining 20-month moving average, and that the stock has not closed above this key long-term moving average since March 2000. So from a technical standpoint, MSFT faces huge resistance just above current levels. I must also point out that there have been three separate bullish cover stories on MSFT so far this year, plus a recent bullish Heard on the Street column in the Journal. The euphoria over last night's "less than meets the eye" good news is just another example of how the Street gushes over MSFT. Unfortunately, weak technicals and excessively bullish sentiment are often a recipe for disaster for shareholders. - Bernie Schaeffer