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Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: Patrick Slevin who wrote (46983)	6/28/1998 10:52:00 AM
From: Robert Graham	Read Replies (1) \| Respond to of 58727

Allow me to reiterate my thoughts. First, I do not see evidence yet of this rally turning into a longer term bull run, like what we saw earlier this year. I also do not see this as a "blow off" top. "Blow off" tops come from the speculative frenzy of the public, and not the liquidity generated by mutual fund money. The mutual funds for whatever reason, and I use the "window dressing" as the only specific reason that I know of right now, are willing to step up and as a group move significant monies back into the techs. This has encouraged public participation in the techs which has also encouraged participation in the market as represented by the S&P 500, which may also be in part fund money. So the positives are that there has been significant money moving into the market by the funds and public, which includes money that has been sitting on the sidelines in MMs. Perhaps we sill see money move back into the stock market from bonds. The S&P 500 has set a tentative high, and it is expected that the broader NASDAQ will follow. Note this unusual market event with the S&P 500 leading the NASDAQ to new highs which is further evidence that the market is not ready yet for a bull run. The resurgence of the NASDAQ composite is lead by some of the "blue chips" of the high tech sector which allows for the possibility of the techs leading the rally at a later time. I think this is important for a strong rally to the upside since this will provide leadership in the market and encourage public participation in the market. The broader market picture has its problems. First, the market is coming from its lows that it made after breaking through significant supports. I do not see the market going straight up from here. As represented by the DJIA, I think a pullback and consolidation above 9000 would be warranted before the market can support a strong continued rally to the upside. The fundamentals as represented by fundamentally related news events can have its impact on the market at a later time. This refers to the slowdown that I think we are experiencing in some key areas of the economy which may be facilitated by the Asian problems that is still with us. Also there are the concerns by the market of inflation and possible Fed tightening of the money supply. Furthermore, after experiencing a substantial drop in the earnings growth of the techs and the S&P 500 which the market has been coming to terms with in its own dysfunctional and limited way, I think the market is open to further downside, both in the near term and later this year if a summer rally were to follow through. I think what we are experiencing is rotation that is not normal for the fund money in what would be considered a healthy bull market. I think this positioning of money will be for the shorter term, whether for "window dressing" or other reason. But since the funds are stepping up with significant monies, I do think their sentiment about the market has changed to be more positive. Between the sentiment change and the money outlay, if this situation continues, we may indeed see a short term summer rally that may carry us to old highs or even above. But I would not be placing even 10,000 as the target unless the broader market picture changes. I even think it is still at this point in time premature to consider the market anything other than a trading range market that has recently demonstrated the possibility of a short term rally, which remains unconfirmed. I think it is always important to have the patient to wait until price confirms. Assessing the liklihood of market price action and setting price targets based on technicals is one thing, predicting where the price will be and at what time is quite another. As a side note, the "window dressing" may not be what has caused the significant amount of money to move back into the market. But the funds motivation to act at the end of the quarter may have been the precipitating reason for the movement of money back into the market. I hope this clears some of my previous post up. I am happy to see someone is causing me to think more carefully about what I have to say. I do find your comment that "the market may be in a stairstep decline but I think the motion continues to new highs first...that is a more normal pattern" to be very interesting. Additional throughts and comments welcome, even if not in the form of a more complete thesis. Bob Graham