MARKET UPDATE: IS THIS A SHORT-SELLERS' MARKET?
By Peter D. Henig
Red Herring Online
September 9, 1998
How much bad news can one market handle?
A lot, it seems, even as the major indexes register massive losses.
Fears that President Clinton may not be able to dig himself out of the hole blasted by Special Prosecutor Ken Starr's report as easily as he's slid through previous scandals weighed heavily against the markets. The Dow dropped another 250 points on Thursday, while the Nasdaq fell 38.97 points, or 2.4 percent, to close at 1,585.58.
Russia experiences continued political instability, and marketwatchers laughed off Japan's quarter-percent rate cut, meant to stimulate its staggering economy. Overseas and at home, there's very little good news which could possibly send stocks higher.
The Street is whispering that Mr. Starr's report might even implicate Vice President Al Gore in campaign contribution improprieties. Is a tag-team impeachment even a constitutional possibility? Say it ain't so.
How low can it go?
Is it safe to short stocks, or too late to take a shot?
The market is eager to test recent six-month lows, but is unable to muster any confidence with its few, scattered rallies.
"If I were in the market right now, I'd be 80 percent cash, 20 percent short stocks, and long nothing," said Rick Berry, director of research for J.P. Turner.
While Mr. Berry notes that the prudent investor should probably be 100 percent in cash, he also feels that "for aggressive investors, there's still opportunity on the short side."
But is there really that much "opportunity" left on the downhill slope for tech stocks? Not only have they taken a sharp slide off all-time highs -- the tech-heavy Nasdaq has already corrected 28 percent off its record 2,028 top -- but the market has shown classic bargain hunting patterns near its lows of late.
"We're still shorting stocks at these levels," says Harry Aloof, editor and publisher of the Wall Street Traders Column, a technical analysis newsletter.
But while Mr. Aloof says that the path of least resistance favors the downside right now, it's not always easy to go bearish, even in these market conditions.
"A stock like America Online (AOL), I'm not sure you'd want to short that one," he says. (Mr. Aloof actually went long America Online yesterday, and says he's thinking about recommending it again tomorrow.)
"The thing you want to remember is to short the stocks that are negative," warns the analyst. "If you short a stock like Dell (DELL), by the time you go to the bathroom and come back, the market could have taken all your money." Mr. Aloof, like many technical analysts, uses the benchmark of selling stocks short only if they are trading below their 40-day-or-longer moving average.
Follow the bouncing portal
Internet stocks have been bouncing around their six-months lows for several weeks now, driving Internet bulls mad as technical traders continue to short the sector.
Mr. Berry, in particular, is short a full rack of Net stocks, including Yahoo (YHOO), Amazon (AMZN), Earthlink (ELNK), Mindspring (MSPG), and Egghead.com (EGGS). In some cases, like Amazon.com, the analyst is ultimately looking for stock prices to return as low as its IPO offer price levels. In Amazon's case, that would imply a target of $15 per share.
Is the market willing to go there? Bulls and bears appear to have locked horns right now in a classic battle as the market tests new lows. Judging by the strong bounce Internet stocks like AOL, Yahoo, Excite (XCIT), and Lycos (LCOS) took near the close, the short-sellers may still not have the upper paw.
Dog stars
Even Thursday's major dogs, like Globalstar (GSTRF), Qualcomm (QCOM), and Silicon Valley Bank (SIVB), which started out the day off anywhere from 5 to 15 points, retraced some of their losses before the end of business.
Globalstar took a major hit following news that the satellite-based telecommunications company had lost 12 satellites in a rocket launch gone awry yesterday.
And Silicon Valley Bank? Mr. Aloof just put out a Sell recommendation on three commercial banks just today.
"[The market] really buried that one," said the analyst.
But did Mr. Aloof have it on his short list? "Nah, you can't kiss them all." |
