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10/21/02  

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July 18, 2002-Where do you start? It would appear that based on earning releases, and spin, that the recent rally and relative strength in tech was more short covering than stronger than expected results. Secondly, from IBM's tepid results, it would appear corporate spending is still weak. There is still an absence of insider buying in tech and telecom, an ominous sign, indeed. The credit card stocks were rocked as COF was forced reveal its sub-prime business was far larger than expected, knocking 40% off the stock. Metris, Providian, and MBNA were hit hard as well, as loss reserves may prove inadequate to cover the defaults. 

On the plus side, HMO's, defense, homebuilders and aerospace were strong both in earnings and subsequent price action. These same stocks have been rocked recently most likely caught in the undertow from liquidating mutual funds and departing foreign investors selling dollar based assets. The consumer continues to drive this economy, and it would appear that will continue. Other than defense, which is driven by a wholly different but extremely positive dynamic, these areas should reemerge as leaders. 

Finally, with August 14 financial statement certification looming, a lack of catalyst and a seasonally weak period, we would not expect an explosion off the lows. There is still a lot to digest and a rounded bottom is more likely. Given the oversold nature of the NASD, recent action seems like short covering. The Dow did its retest of 9/21/01 lows and is really oversold. I suspect the money will follow the consumer stocks and defense. CASH still looks good, with cautious accumulation of value and revenue momentum at a fair price warranted. 

July 17, 2002- The market is now digesting the prospects of expensing options, and the possible earnings restatements from CEO and CFO statement certifications. Analyst's might want to factor in some increases in D&O insurance, which might, in the future, warrant a separate line item. While we again failed to follow-through on another reversal and another long-tailed candle, we appear to be creating some value and the volatility and ARM's is suggesting a trading bottom, if not a bear market low. It is interesting that the NASD is outperforming the Dow, and even INTC's bad news yesterday is not preventing the stock from trading up this morning. 

Yesterday, we commented on the market "throwing the baby out with the bath water". This, I believe, resulted from mutual fund redemptions and global investors selling dollar assets, including many stocks that had been market leaders. Defense, hospitals, retail, housing, and hmo's were taken down in the liquidation and should get some rally potential. Clearly, there is some action in generic drugs, particularly IVX, and in the telecom sector, with names like FON, attracting some buying. Additionally, there is a bounce in tech, that, search as much as you want, does not seem to have underlying fundamental logic. 

All in all, the market is pricing in the negatives, and has created some attractive opportunities in the old leaders (LMT, RTN, UHS, UNH, LLL. etc.) and some selective opportunity in tech (CHKP) and telecom (FON, VZ). 

These charts show why I believe we may get a tradable rally, without having a definitive bottom. Unless this bounce bespeaks a fundamental improvement, it will fail. 

July 16, 2002- Was yesterday a reversal day? Yes. Typically, this presages a rally. Unfortunately, recent reversals have had no follow-through, and the early futures suggest, again, no follow-through. Volatility peaked yesterday at 43.6, put/call ratios were high, fear was rampant, volume was high, and the markets appeared to be nearing capitulation, when at around 2:40 PM the market turned and rallied around 350 Dow points, and the NASD, which has been recently outperforming the the Dow, closed up. After the close, speculation arose that the Fed precipitated the rally and associated short covering by buying futures. I hope this is not true, because the Fed should not have tried to jawbone the runaway bull, and it should not intervene in the equity markets, either. 

The SPX broke its uptrend from the early 80's trough, while the NASD sits on its trendline from the '74 bear market lows. However, the NASD has broken the neckline of the head and shoulders top. Meanwhile, the Dow broke its uptrend from '82, viewed by many as the start of the late and great bull market. These charts should not inspire buying because it would be difficult to conceive of a V bottom off this kind of damage. While there are cheap stocks attractive for purchase, the markets, as a whole, are still expensive and there is an absence of insider buying. If you should buy, take at a look at some of recent leaders who have become a source of funds from liquidations like defense, homebuilders, the RBOC's, regional banks, EDS, media, and selected tech like CHKP.  Many of these names provide some yield. 

July 15, 2002- Many issues with far-reaching consequences are swirling about the markets. The expensing of options of some basis is clearly an issue that will most effect Silicon Valley and venture capital situations and overall earnings and valuations. 

Additionally, Chairman Powell of the FCC essentially launched a trial balloon implying the desperate condition of telecommunications and the requirement to keep networks operative may force him to accept a reconsolidation of telecom, including the possible merger of Worldcom with one of the baby bells. The allusion is that maybe this business is a natural monopoly and the efforts to spawn competition only destroyed untold amounts of capital. The implication is that this capacity could be consolidated and pricing power returned to the RBOC's. Sprint looks like a great value in this consolidation scenario. Additionally, the RBOC's are pretty cheap. 

Further, Pfizer is buying Pharmacia, for stock. Despite the hostile climate for acquisitions and intangible assets, consolidation may prove a positive for this market, and give shorts some reason to pause. Finally, the management buyout of Robbie Stevens was thwarted and the old firm, so important to technology capital raising, is being closed. 

This is a lot of stuff for Monday morning, but it further bespeaks that necessary debates and actions are being made to reconstitute things to restore the economics of many businesses and the trust. 

Over than being oversold, these are chart patterns that suggest only countertrend bear rallies. However, we are getting to the point where we are throwing the baby out with the bath water, and are creating manic depression to offset the irrational exuberance. Investors with 12 to 18 month time horizons will start buying value. 

July 13, 2002- Maybe a short-term trading bottom, but not a trend reversal. The VIX (Volatility Index) suggests rampant fear, a normal trigger to a rally. We are in a steep downtrend and are short term oversold, and could wade into some of the copious overhead, which will stop any rally. But traders should consider covering their shorts and going net long for a little bounce. This bounce will be complicated by Friday, and traders exiting for the weekend and possible imponderables. 

Some babies got thrown out with the bath water as mutual funds met redemptions by selling some of the good guys, like THC, UHS, LMT, WM, and WEN which might get back on track after the air pocket. The SPX and Dow Industrials have broken long term uptrends, while the NASD is above its long trend line, from the bear market lows of the 70's, but it is printing a head and shoulder top, with the neckline slightly broken. For these reasons, and an extremely disquieting absence of insider buying, I would suggest a trading rally of 3% to 7% is reasonable. 

July 12, 2002- The market is wringing out the largest excesses in the history of markets, but, sadly, after all this carnage, apparently current prices are not attractive to insiders who continue to sell. Further, fundamentally, the retrograde earnings and revenue portrait, does not create "to die for" value. Complicating matters is the daily bashing of Corporate America, as if all companies have succumbed to greed and have lost their moral compass. We need to see some divergence between negative sentiment and reality. Specifically, sentiment needs to get worse, while values, fundamentals, or market breadth and volume need to rise. In essence, we need some elemental divergence to tell us to buy. Give us a hint before you sell CASH to fund equity purchases. 

Technically, the 9/23 lows are fading in the rear view mirror as we head lower. The waterfall on higher volume is suggesting we may be nearing a trading bottom. However, this has just meant a brisk one day rally followed by more downward spiral. We are, at least, appearing to be in the late innings as volumes increase, obv points straight down, and investors hit the bids going for the exits. Mutual fund redemption are causing some of the problem this week, so we could get a trading bottom. One suspects that we will go to the same negative extremes to counterbalance the extremes of the absurd bubble of 90's and '00. 

July 10, 2002- Tuesday's action could have been triggered by mutual fund redemptions from the release of 2Q statements. Ominously, we continue to see the market's total inability to proceed upwards after reversal days. While the economy plods along in positive territory, the Fed is accommodative, the yield curve is positive, we are creating some value, we, nevertheless see a market disconnecting from heretofore positive market underpinnings. Pundits suggest geopolitical threats, and complete destruction of confidence by the bear market, greedy intermediaries, and corporate malfeasance account for the disconnect. I would add the complete lack of pricing power, overcapacity, and the fact we are not really scrapping the excess capacity. 

It is hard to find a sector that is not technically buried. While some stocks appear fundamentally attractive, accounting worries abound. After all, Worldcom looked cheap, as did Quest. While the futures are looking positive this morning, and Merrill Lynch puts a strong buy on Cisco, I find little reason to get excited as we face the dog days of summer. We need some follow-through, market breadth, value, insider buying, broken downtrend lines and moving averages, etc. 

We clearly are in a very difficult period where we are oversold enough to be cautious shorting, but clearly are bereft of strong buy signals. Be patient. Sailing without wind is tough.

July 8, 2002- Friday's oversold summer rally on relatively low volume (half day trading after July 4) was a nice break. I think this market could reverse trend if we see a real pickup in insider buying, a turn in technology capex spending, and some real value being created. There is some sign of insider buying in technology. We also are seeing stocks selling at between 10x and 15x forecast, like EDS, IBM, ISSX, SYMC, and NOK. While it may be very early and the lows have not been touched, for those with longer time horizons, these stocks could outperform over the next 12 to 18 months. 

Then, we have stocks choking on debt with impending principal payments and unaccomodating debt and equity markets. Divestiture and rationalization, together with burning off executive fat, could make for some interesting realization of value. V and AOL fit here as organizations that can no longer engage in flagrantly stupid and irresponsible behavior. Sprint may be a player that could benefit from rational pricing and a better balance sheet, as business leaves WCOM. If you buy their forecast, FON sells at less than 10x forecast eps. 

Merck is getting killed on off-patent and pipeline issues, with an accounting problem thrown on top, which leading investors to senselessly hit the bid on the way out. This co-pay revenue booking is used by half the businesses in the field. Actually, while it increases revenues and revenue growth, it depresses gross margin, another key valuation metric. This morning, MRK is trading around 13x forecast. 

It would appear the market is starting to go to a bearish extreme, and is creating value for those with a cool head and a longer term perspective. Early futures are negative, but you would expect that off the Friday action. Because few expect it, this market may have more upside in its imminent trading action, after the profit taking is finished this morning. 

July 5, 2002- Wednesday's reversal may bespeak the start of a summer rally. Getting through July 4 without a cataclysmic event seems to be emboldening foreign markets and early futures. At 8:30 AM, the jobs number were below estimates, while prior months were revised downward. This has taken some air out of the balloon, but the futures are still very positive. I think it is too early to buy tech, although the charts suggest an oversold bounce based on pipe dreams is a possibility. The reality is that business stinks in tech and telecom, other than maybe storage and security, and that the rest is not compelling. 

Best guess is another failed rally. After a brief pop to relieve oversold conditions, it would appear reality will descend and we will get back to basics. I would continue to look at defense, hospitals, unless you are nimble enough to play a tech bounce. EBITDA stocks may have been beaten up too much and AOL, CMCSA, and FON may deserve a look. I think we could begin to see disaggregation of some of these huge multi-companies. Conglomeration has been a trough for pigs and accounting fiction and just doesn't work. This disaggregation will come through spinoffs, since there are no buyers who want to step into a buzz saw of more intangibles and debt. This may result in an obvious need to look at the extent to which premiums of net assets acquired needs to be written off immediately. 

We broke below a significant channel and could rally back to the lower channel break around 980 or so. Again, look to volume and breadth to determine the magnitude of any rally. Any failure will invite even more selling. Maybe, the NASD could rally back to the 1423 to be even 1,500, which would be a decent countertrend retracement. Again, any failure here would invite even more selling creating new lows for the index which in beset with serious biotec, telecom, and tech woes. The Dow, at this point, is in better shape because it has a lower tech and telecom makeup. 9600 is a 6% recovery and would be within bounds of a countertrend rally. 

July 3, 2002- You want good news? We are getting oversold and could get an oversold, but doomed to fail, bounce if we get through the July 4 weekend unscathed by terrorists or announcements of fraud, earnings warnings, or executive malfeasance. 

One of the things this bear market must do is eliminate excess capacity and put pricing power in the hands of strong and properly capitalized. Another thing it must do is eliminate freebies, either by legal action or the inability to fund losses and grotesque uneconomic business models. With this in mind, is FON in a position to pick up the lost business from WCOM and reprice it upwards? If it is, FON could be a triple. The free sharing of files in music is getting more difficult as legal actions shut down the servers, and music lapels contemplate going after individual nodes with the biggest illegal files. Does this spell a possible turnaround at AOL and Vivendi Universal? Maybe these names have been beaten up enough. Also, the EBITDA names have been crushed and some are well-managed like CCU and CMCSA. It is not too early to take a look.  

Other names may have more bad news. I remain concerned about C and JPM and their business models mixing loan and equity underwriting and syndication, as I have mentioned many times before. Additionally, we must be concerned that the layoffs and the equity/high yield debt sell-off will push the economy back down below zero.

It has been horrendous, but breaking these uptrend lines could lead to some more capitulation. 

July 2, 2002- Vivendi and EDS spark today's controversies, further damaging confidence, and sideswiping other industry players like CSC, IBM, SDS, and PER, where "percentage of completion" contracts seem to convey too much discretion to management and conflicted auditors. XRX continues to reveal indiscretions in allocating lease between financial return and maintenance. While does not change the aggregate numbers, the timing of those revenues is critical to manipulation of earnings. 

The SPX and NASD are printing massive head and shoulders, while the Dow sits at a critical uptrend line. There is little for the bulls to argue except being oversold, and maybe a disconnect between an improving economy and a deteriorating stock market. Stay cautious, and stay away from tech, which has yet to create value. A nice four letter concept to consider is CASH.

July 1, 2002- We have been saying to concentrate on value, and technically attractive situations, however few and far between they may be. If one were approaching the indexes, they would either sell or short. They are overvalued and in a notable downtrend, with long-term trend lines for the Dow looking vulnerable. So, herewith are what to investigate and what to be concerned about. 

• Companies in tech and telecom should be avoided, unless as shorts. They have no pricing power and corporate spending is on hold. Sales cycles are infinite and pricing power is zilch. This was fine when tech and telecom financed the buyers with paper that was best used for personal hygiene. These sales were the most bogus in corporate, unless one looked at the history of General Development and Deltona (the last great Bear Market of the '70's). 
• Companies that have had major acquisition programs using stock or debt, and have used asset write-downs and spring loading to create phony "organic growth". 
• Companies that are massively leveraged based on total liabilities to tangible net worth. 
• Companies whose business is confusing and statements not revealing.
• Companies valued on EBITDA, that have to reinvent themselves constantly to stay in business, and where true profitability is not in the cards. 
• Companies that have to reinvent themselves constantly to stay in business, that should consider R&D expenses, not capital items. 
• Story stocks that strain credulity and are nothing but first stage venture capital. 

We have been saying for years that many areas of American commerce were over-financed and, consequently, the seeds of destruction were sown by permissive capital. Now, what to look for in this new, but very old "show me" market from Missouri. 

• Reasonable value based on historical relationships, and vis a vis the market.
• Real earnings and real tangible net worth that bullet-proofs the company against downturns.
• Organic growth, with no acquisition gimmicks. 
• Barriers to entry. 
• Reasonable thematic impetus to propel revenues and profits. 
• Independent directors, not cronies and buffoons.

If you look at the failure they were big acquirers, little tangible net worth, captive boards, growth through acquisitions, story stocks, and/or highly dependent on banks and debt markets. One should note that while the indexes have been all-time putrid, you could have made big money buying defense, hospitals and hmo's and shorting tech and telecom. The criteria above would have worked. While it is correct to not that history does not prefigure the future, it is a very helpful guide. 

Here are some names to consider on the long side and the short side. Check back later on Sunday. Discount to market PEG ratio assumes forward growth of only 7% and a market forward P/E of 25x, giving a PEG ratio of 3.5x.

While there is no assurance that these stocks providing growth at a discount to the market will succeed, it would appear the market will turn to more value and growth at a reasonable price. The names above warrant a look.  

The flip-side of these names would include companies with slowing growth or no growth but rich valuations. The figures quoted are analyst estimates of sustainable growth, and, hence, subject to downward revision. While studies have shown that valuation is not a guaranteed knockout, it does expose these names to severe price risk to disappointments, and does encourage management, if organic growth is failing, to engage in accounting legerdemain. The most outstanding overvaluation is gold which is a pure war risk palliative. Additionally, analysts are very slow to lower growth rates and earnings forecasts. I have excluded biotec and fallen angels like SUNW, PMCS, AMAT, INTC that are still very rich for cyclicals. The names below have not yet really stumbled....... yet.

While you are getting serious growth in these names, they are hardly value names, and remain at risk to warnings.  

June 28, 2002- The market is puking out stocks valued on EBITDA, principally telecom, tech, cable, and media. While this had become an accepted valuation tool, it has a fatal flaw. Cable, for instance, used to say in the early 80's, that once the system was built, the depreciation charges would decline and they benefit greatly from operating leverage and become very profitable on a GAAP basis. Because they have had to constantly rebuilt and upgrade their systems, they have never been profitable. The same argument was made for fiber, radio, internet service, etc. The bad news is obvious. The good news is that this money will find itself in businesses with real earnings, no acquisition chicanery, pricing power, and revenue momentum. Hospitals, hmo's, some consumer staples and defense fit the bill. 

While yesterday's action of recovering from a mid-morning swoon was impressive, the weekend and terrorist threats, plus the Xerox revelations may curb the market's enthusiasm. The downtrend has never been better illustrated than these charts. We are having a countertrend retracement of uncertain duration and magnitude. The more important point is not whether you should buy the index, it is are there sectors that have are fundamentally and technically attractive. 

June 27, 2002- We had another reversal of sorts yesterday, with technology, hospitals, defense, and labs showing some relative strength. Last night, Harvey Pitt did a barnburner of a speech about new CEO and CFO requirements and sanctions, and this morning, 1Q GDP was revised upwards to 6.1%, and unemployment claims were down 10,000, suggesting to investors that maybe the economy is stronger than bears want to believe. Left behing in the furor were the high yield market, EBIDTA plays like CATV, wireless, etc. Another good point is that you can not solve a problem unless it is clearly defined. Clearly, we now know the nature of the issue and what we need to do to restore confidence, credibility, and honesty. We know that the triple level protection of disclosure, gatekeepers, and enforcement failed, largely because the gatekeepers (CEO's, the BOD, the auditors, the underwriters, the analysts, etc. were conflicted, immoral, greedy, complacent, incompetent, etc.  

Personally, while this may be a giant double bottom for the markets, I still believe that extended basing is necessary and overhead resistance will prove difficult to vault. However, bear market rallies are brisk and tradable and this may one of those. Take a look at LMT, RTN, GD, LH, UHS, FDX, GE, GM, and ESV and some tech but only CHKP, NOK, QCOM, and ORCL. This is a trading call and one should look at the overhead levels to define targets and keep stops in place.

The targets are 1044 for the SPX (7% above yesterday's close), 1,560 for NASD (around 9% above yesterday's close), and 9600 for the DJI (a 5.2% gain from yesterday's close). As always, look for breadth and volume to signal the strength of the rally. We will get the short covering to lead the charge but need true high breadth volume to suggest real strength. If we see it, then it is possible we have define a low. 

June 26, 2002- I posted a commentary over the weekend about the myriad reasons investors should be worried, and the geopolitical mess. Since then, we have been advised of possibly the largest accounting fraud in history (WCOM), the head of another public company exposed as a liar (Martha Stewart), and, that Yassir Arafat had apparently paid El Aksa Martyrs Brigade for recent suicide bombings. Debt markets are coming undone, as emerging markets and high yield debt plunge. 

Friends, this is the blood in the streets when cooler heads look for buys. If I am the only one saying it, then all the better. We are oversold already, will break any of the prior lows for the NASD and SPX, but may exhaust the selling during the morning. We could see some real bargains being created. Another feature of the WCOM situation is that it may add to the dollar's decline, may prevent the Fed from lowering rates, and increase equity risk premiums to attract any foreign buyers who will flee a sinking ship. 

If you have been reading, you have a large cash position, and should get your buy list together. First, generally, look for real companies with real earnings, that have businesses you can understand, clean balance sheets, and little in the way of recent and material acquisitions. Look for companies that have reduced cyclical sensitivity and which are thematic. Additionally, look for businesses that could benefit from a weaker dollar. 

Should you short stocks? Too late. All you will do is add to the buying pressure when the dust settles. defense stocks, JNJ, PG, FDX, TGT, hospitals, and, for the courageous, FON and T, who should be able to strip WCOM of business and see tighter pricing overtime. 

June 25, 2002- Bush's speech on resolving the Israeli- Palestinian conflict, together with Microsoft's announcement of its earning release date sans warnings, ignited an oversold market that, in the case of the NASD, had touched the September lows. The markets are oversold, and the bounce had very high volume, suggesting there could be some follow-through, an idea the early futures are endorsing. While short covering will add to the bounce, fundamental factors must also help to reinvigorate the upside move. That is the problem. Unless, the 2nd quarter earnings come in stronger than expected, this rally will fizzle in huge overhead supply. 

Realistically, a disaster of this magnitude is underpinned by horrid fundamentals. Working off the excess capacity, lack of pricing power, geopolitical problems, destroyed confidence, corporate spending diffidence, etc. will take time and technically suggests retests of these lows, at a minimum. So traders be nimble, and investors remember that cash is not equivalent to the plague. Watch the breadth and volume to indicate how far this bounce can go. Before we get giddy, these charts show that the lower highs and lower lows is firmly embedded, and this rally borne of short-covering will provoke imminent selling and shorting. 

Hospitals and HMO's have had a terrible time since the Supreme Court decision, but this might be an opportunity to buy stocks with revenue and profit momentum and reasonable valuations. 

June 24, 2002- While we could have a countertrend oversold bounce, it will probably fail in the face of a laundry list of problems for which quick and positive resolution is dubious. Go here and and here to find out more. 

If the NASD trades below the September 21, '01 close, it could bring in more capitulation. There is literally no sense of insiders or smart money accumulating these shares as they fall back to earth. As we have been suggesting for almost two years, stay away from picking bottoms for tech and telecom. This could be the ugliest week of this bear market. 

NAZZ could rally back to 1500 and fail again in this waterfall pattern. Dow could rally back to 9600 but the economy and the geopolitical mess will need to provide some impetus could much further. 

June 21, 2002- The 90's were arguably the most permissive in the history of capital markets, allowing exceptionally dubious propositions to get funded by either debt or equity with no promise of even positive cash flow for years. The Internet, like biotec before it, was the most pivotal event in the history of mankind and would reshape the world. We are now in phase of getting back to basics with a rampant "show me" attitude. Techs are, at best, cyclicals, and, at worst, not even decent venture capital bets. The equity prices for surviving companies, and the number of bankruptcies is difficult to forecast, but we must continue to work off the multi-year hangover. We must hope that in this demoralizing and seemingly endless process, we do not loss consumer confidence. This could put the economy into reverse gear, and bring down the elements of the equity and debt markets that are doing well. The really bad news is that we overdid to the upside, but it would not appear we have overdone it to the downside. 

We approach a retest of the September lows in the NASD, but the big price ranges, suggest we will pierce the lows. Normally, one could see the volume go quiet, as the daily price ranges decline. Curiously, many of these tech names are still overpriced, with many at 10x revenues, and show no signs of insider buying, only selling. We could be approaching capitulation, at least for the time being. 

June 20, 2002- The first five months of the year provided opportunities if one had sidestepped tech and telecom. Now, the A/D and weak volume are suggesting the retest, and possibly failure. Positive price action now is confined to small portions of the economy. If this malaise spreads to the consumer, the economy will go negative, with no monetary or fiscal tools left to address the problem. The terrorist landscape is a rotten backdrop, as well. We continue to suggest very high cash positions, some selected shorts (for those who are familiar with the art and science) and confining longs to defense, energy, hospitals, and hmo's, which are on fire. While I periodically need to check the serotonin levels, I do not believe an objective view is very positive. 

We need capitulation and huge volume down. We need an accelerated pace of bankruptcies to remove capacity which is killing pricing power. We need radical pessimism. We need the doomsday scenario imprinted in everyone's conscience. We need seasoned investors "scared to death". 

Fundamentally, we are seeing a negative malaise in corporate boardrooms, which are cutting capex to the bone. If this spreads to the consumer, who, fortunately, does not read the Journal or watch CNBC, we could see the economy go negative. Low rates are continuing to propel the housing sector, which is a beacon, if not a buy. I believe some exposure is warranted, as well as multiple expansion. These companies have put together serious, quarter over quarter growth, have sub 1x PEG ratios, are well managed, benefit from consolidation, and would only be hurt with major moves up in interest rates. However, the mere suspicion of higher rates is enough to torpedo these names. 

I am going to posit a theory, which is uncomfortable to express. I believe that consumer spending will dim, confidence will wane, and the economy will approach zero growth. The administration will need to push the war on Iraq as its last pump priming exercise. After an initial decline, the market will rally. How do you use this possibility? RTN, LMT, NOC, and energy. 

June 19, 2002- ORCL, AMD, AAPL, CIEN, etc. warned confirming that the so-called bottom in tech and telecom is a work-in-progress. These deep cyclicals still need price reductions to be attractive from a fundamental value standpoint. Remember, there was a time in the early 90's when names like NOK and INTC sold at single digit multiples and CSCO (pre-acquisition frenzy and dubious accounting) was selling with a PEG ration well below 1x. Additionally, huge amounts of capacity need to be eliminated in tech and telecom to restore any sense of pricing power and scarcity. We are still in the early stages of the shakeout, but the inability to fund losses may accelerate the scrapping of excess capacity. These areas still suffer from the core issue that the hardware is far beyond the software applications and buyers do not see the killer apps requiring higher speeds. Additionally, video on demand has not absorbed huge excesses in fiber capacity. 

Meanwhile, traditional areas of the economy have value and momentum, and should be the focus of investors not looking for a high beta pop. Again, the daily mantra is defense, regional finance, some energy, hospitals, hmo's and winning retail and restaurant companies, like Wendy's. Recently, transportation is showing signs, particularly UNP, which is printing a great chart.  

Perfect charts, but only if you like downtrends. The retest approaches. There is nothing in tech or telecom that looks appetizing, with the exception of Checkpoint Software, which is in a market sector that still is needed and is meeting their estimates. However, the chart is uninspiring. Most of the areas providing value and positive price and earnings momentum are off the NASD, which is why the DJI is not as horrendous as the NASD. 

June 18, 2002- Housing starts were strong, while CPI was 0.2%, which were supportive of the notion of non-inflationary growth. Yesterday appears to have been an oversold relief rally with good breadth, but tepid volume. The rally included tech and telecom, but without a fundamental basis, this was more of a rally back to downtrend lines and downward sloping moving averages, normally a predictor of failure. Defense was very strong, and this morning's bus bombing will keep the wind at the back of these stocks. Finance had a bounce, but the regional banks are a safer haven than money centers and brokerages who face imponderable financial damage from lawsuits. 

While the rally could continue for a few more days, ultimately we need to see continuing signs of economic activity, as well as some sign corporations will resume spending on productivity tools. Economic recovery is vulnerable to deteriorating consumer confidence and lack of tax rebates, refi's, or a buoyant job market. Defensive areas should still be the core of a portfolio. 

The charts show the overhead issues the market must resolve. Also, this dramatic technical damage is not resolvable with a V bottom. 

June 17, 2002- Investors may take heart that Friday was some sort of "key reversal day", but looking at the charts, there is virtually nothing that looks appetizing from a fundamental and technical perspective. There are just myriad stocks that are trying to setup for a breakout, or setting up to break down or reconstitute an up-trend. The futures are suggesting a strong opening, but until the charts suggest follow-through is possible, do not get excited. Trend reversals do not begin on a Monday morning without warning or basing. 

The market has rewarded those who have dug for value with businesses that are easy to comprehend. Wendy's with their new salad offerings is a good example. Surfer gear is hot and the stocks are cheap. Hospital stocks and hmo's are working, along with railroads. Defense has not broken down, and in light of the completely unresolved geopolitical situation, should not break down. There is a good four letter idea for you........... CASH. While we might jump at the open, the follow-through must occur to get mildly excited. 

We are witnessing the adjustment process to the grotesque excesses of 90's. From valuation, to pipedreams without a profit model, to excess capacity without demand, to excessively lenient credit, etc, the markets are watching daily bankruptcies, mass layoffs, executive malfeasance, etc. which all mark this daunting process as the market regresses to the mean. Since we do not have a cheap market, this process may grind on as appropriate supply/demand balances are achieved. In telecom, the process will continue to be ugly, with technology continuing to separate the wheat from the chaff. It is not over. 

Some may view this as a successful test of the September lows. Perhaps, but you do not get V bottoms off technical damage of this sort. The Dow is oversold. The most worrisome issues are the extent to which the doldrums of the equity markets erode consumer confidence, and destroy the most important leg of the economy. Secondly, the world geopolitical situation appears unresolvable. Who do you negotiate with if you want a peaceful solution? Who do you attack if you pursue a military victory? Viewed as a classic have and have nots struggle, and the last gasp of despots to hold power, will this struggle endure as long as the cold war? 

June 16, 2002- Retail sales were down 0.9%, Karachi car bomb, Sprint PCS subscriber growth cut in half, and consumer confidence in question all conspiring to make yesterday and probably today very ugly. The notion of the V bottom for the economy is coming under question. We had suggested that eventually the market's problems would insinuate itself onto consumer consciousness and possibly have a retardant effect, unless the market could rally. Main Street and Wall Street were looking at a life through different color lenses. Without the massive fiscal infusions, massive rebates and free financing, lower interest rates, massive refi's, and easy money, the consumer may have a tougher job keeping the economy in the positive. Corporate spending is still on hold. The reasons for that are obvious. 

Once again, we suggest cash is critical and return of capital not return on capital is critical. Additionally, lest we slip into complete depression, the performance of the equity markets, sans tech/telecom/proprietarydrugs-biotec has satisfactory. It is not the time to pick a bottom in these stocks. Wait for the charts to tell you it is time. Elsewhere, the technical and fundamental  arguments for defense, hospitals, and hmo's appear intact. 

Is this the day for a high volume, climactic sell-off, that creates the blood in the streets? Since this is Friday, and we have a weekend of terrorist activities to threaten our confidence, it may well be the day. If you are tempted to buy into it, buy earning, free cash flow, value, and sell pipe dreams and falling knives. 

I believe the free world is at a crossroads, not unlike what Europe confronted in 1938. We now face a decision about whether to continue to expect the best from a group of paranoid schizophrenics who have bullied their way into control of a proud religion to use it a shield to prevent the inevitable conclusion. That is that we are now being controlled and jerked around like a big docile animal with an IQ of 10. We are at war, and we sacrifice and give things up in that situation. We need to think about civil liberties for aliens and illegals, we need to take  action. The future of civilization is at stake. The average man in the street sees this clearly. Unfortuanately, our allies do not see it as clearly. While Russia and to a lesser extent China have been bedeviled by this problem, we must act with support or without support.   

June 15, 2002- We are oversold, and sentiment is now sufficiently negative to be a positive. The real economy appears to be in positive territory, and the India-Pakistan situation appears to be defused for the moment. Valuations in the real economy are reasonable and, in some instances, attractive. The high-beta addicts are ready to rumble, as a rumor about Microsoft announcing they will beat the estimates boosted all the averages, indicating how much this market is ready for an oversold bounce. I should add the MSFT chart looked strong prior to circulation of the rumor. TYC's registration became effective, but at the price of restating the prior quarter to recognize the impairment of its investment in CIT. While this could lower TYC's negative profile, the SEC simultaneously indicated they were reopening their investigation into TYC accounting relating to its acquisitions. 

Two industry groups in tech-land are redoing the recovery in six months mantra. Essentially, this suggests a recovery six months from any point you inquire. An evergreen recovery starting six months from. This evergreen rally has been around for almost two years. 

Anyway, as we have been suggesting, stick with the real economy because techland is ready to have a bounce, but it is not ready to reverse the downtrend. It is retesting the September lows, and will probably stage a show of strength, but not accompanied by the business fundamental or attractive valuations. While we obsess about the averages, defense, generic drugs, railroads, hospitals and hmo's have put together a strong technical and fundamental show.  

June 12, 2002- You wanted a retest in the NASD and you're getting it. If we could get a high volume test of the lows, and a successful hold, maybe we could have a tradable rally, but it will undoubtedly fail if there are no signs of improvement in the underlying business. Unfortunately, there is nothing to suggest tech or telecom is out of the woods. Nothing. Not only that, but valuations are unattractive. Look, we now know that there is no pricing power, no demand, glacial sales cycle, lack of killer software to support new hardware, etc. Still, there are high-beta addicts that yearn for the quick pop and they will gun the area. There will come a time that this area will reverse, but I doubt it will be this summer. 

That leaves the rest of the market, representing about 75% (or more and growing) of the market to look at. The market has some good stories, revenue momentum, real earnings, free cash flow, and viable balance sheets. HMO's (UNH, HUM), hospitals (THC, UHS, HMA, TRI), labs (LH, DGX), some consumer non-durables (PG, CLX), defense (LMT, BA, RTN), select restaurants (PNRA, WEN), certain retailers, and a few regional financials (WM, SOV, WB) possess good value characteristics. These are your momentum stocks until they break down. Alternatively, you can call the bottom, catch falling knives, be a real hero, and be a rugged individualist. That may work if you have endless amounts of time to wait and performance is not a concern. If you have that kind of money, I suggest you give the money to charity.  

One thing that should be evident is that business is very difficult, very over-populated, and very efficient. The consumers are benefiting from this, but investors are being victimized. 

June 10, 2002- We are oversold, but not enough. We have yet to have the climactic sell-off, with horrendous volumes, gigantic put/ call ratios, etc. Therefore, despite a probable bounce soon, it would appear that overhead supply and a lack of true positive catalysts will perpetuate the quagmire. Do not buy the indexes. Buy the sectors that are working, look to bonds to provide diversification and an offset to a weak economy, and do not mock cash as you wait for the price adjustments to continue. 

Sectors that are working right now include hospitals, hmo's, labs, generic drugs are starting to recover, and railroads. Oil service has undergone a rapid retracement (1/3 of its huge move up) and may be ready to, at least, retest the recent highs. If this market does rally, look for the volume and the breadth to signal the underlying strength and probable distance of the move. 

The NASD did collapse to the breakout double bottom from September and rally. While this gave investors some optimism, it is just a straw in the wind. The Dow looks awful. Do not pick bottoms. Do not think it is time to buy, when stocks are under distribution. Often, the reasons for an index or stock's collapse do not become apparent until after the damage is done. Be patient. Obviously, these markets are suggesting a world at risk, a lack of strong economic recovering, a lack of pricing power, grotesque overcapacity, a complete lack of trust in management and accounting, worsening deficits (particularly at the state and local level where tax increases are inevitable), and a growing malaise that may be tough to break. Further, the government is out of fiscal and monetary tools since that have been exploited with no real response. 

June 6, 2002- We are oversold, and the economy continues to show signs of moderate activity. However, the daily announcements of terrorist threats, nuclear holocaust, corporate mismanagement, fraud, conflicts of interest, etc. make it difficult for new money to come in. What money that does come in will probably end up funding the spin-off of a CIT, or an irresistible offering  of Northern Telcom. One more effort to drop another bomb on investors?

I want to alert investors to the possibility of a major problem that could develop over the summer and the fall. Securities laws have been violation, in addition to rampant acts of immorality. Smith Barney underwrote three issues for Adelphia in the last year or so, at the same time Citibank was syndicating loans to Adelphia, and deriving syndicate fees. First, there is the issue of adequate "due diligence" and understanding the use of proceeds, where there was a clear failure. Second, there is the issue of "equitable subordination", where a "control party" lending priority is reduced to the level of equity. We will see if the notion of the Chinese Wall between underwriting and lending is a defense. However, between the civil suits from investors and loans being subordinated or having to repurchase loans from the syndicate because of lack of disclosure, this could start to put a heavy strain on C, MWD, JPM, particularly. While these stocks appear cheap, I am not sure the legal possibilities are in the price. Nor is the deterioration in underwriting, trading, and M&A in the price. The cheap could get cheaper. 

A rally back to 1,700 is possible. However, breaking any of the many downtrends appears to need widespread indications that business is turning up in a material way. These charts show it is not a great idea to buy the indexes. Unfortunately, other than gold, hospitals, and hmo's, we have lost most of the sectors previously in uptrends. Cash is OK, but fixed income may provide some stability and income in the meantime. Rushing into "up one day and down one or two of the next days" is unrewarding.  The 5 year Dow Industrials chart shows the futility of "buy and hold" in an overvalued situation. 

June 5, 2002- I will not reiterate the daily litany of negatives, because they are becoming a mantra of market malaise. For those unlucky enough to be around for the water torture of the 70's, with its slow, almost imperceptible meltdown, there will be a reference point. In that case, inflation and high interest rates siphoned money out of equities that were cheap (around 8x earnings). Today, we are dieing from a thousand cuts, without cheap valuation or prospects of a robust recovery to provide any allure. 

We are a disheartening point, where markets are not quite oversold, without a climactic sell-off, and not attractive to buy, but oversold and extended enough to the downside that shorting is undesirable. Tech had a little bounce yesterday, but there is just too much overhead, and too little positive news to warrant anything more than a mirage. 

Meanwhile, the dollar is oversold, but clearly could become a problem as imported inflation increases, global purchasers of equity and debt retreat, and our overall cost of capital expands. While this is of no import to the likes of Skilling, Kozlowski, Rigas, Ebbert, et. al., the real victim of their greed and lack of character is everyone and the capital markets, which will require a much higher risk premium, costing us innovation, jobs, and more. Thanks guys! The presidential behavior of the 90's, together with this hall of villains, completes a growing portrait of the US as no better than old west or an emerging market. Getting these investors back will require a strong dollar and cheaper prices. 

Clearly, the bearish downtrend is back with a retest of the September lows becoming a strong possibility. 

June 4, 2002- The Dow broke support at 9800, while the NASD, broke its mini-uptrend. While the economy continues to suggest we are recovering, the disconnect between Main Street and Wall Street is becoming irregular. While consumer confidence and spending are very healthy, Wall Street continues on its meltdown. While John Q sees value and derives confidence from his or her job and home, Wall Street obsesses about bubbles, geopolitical events, valuations, profitless prosperity, etc. So far, the stock market woes have not crimped the behavior of the individual consumer, while the individual investor is depressed and spiraling downward into a black hole. Resolution of this dichotomy could adversely affect spending, which, in turn, could adversely affect future profits from all consumer categories. Keep in mind, we have exploited monetary and fiscal policy and may have no further options. Losing the consumer because of the stock market ills (my money is never coming back), could really spell a huge crisis of confidence. 

Further, we have IPO's stacking up and declining money flows. 

Support, once broken, becomes resistance. And, now for the good news. We are getting oversold, and could get a snapback rally of a purely technical nature. 

June 3, 2002- Friday's sell-off after very good economic news, suggests the gravity of the malaise, and the fact many investors do not want to hold going into a weekend fraught with downside possibilities, not upside potential. It is possible that getting through the weekend unscathed may give some traders some confidence to boost stocks following on the aborted rally attempt. I believe that obsessing about the indexes is dangerous. Rather, investors must focus on the the fundamental and technical basics. Broken record time. Defense, energy, generic drugs, drug distribution, regional banks, satellite communication (the wirelessly networked and unmanned global battlefield), hospitals and hmo's. We also think that fixed income exposure is critical with emerging market debt and high yield warranting a very close look.

The Dow looks great but only if your reference point is the NASD. About 2 years ago, we predicted we were entering a nuclear ice age for the markets. Welcome to that world. 

What do we need to get off this flypaper? First, we need to stop mixing metaphors. Second, we would need to see some climactic sell-off, dropping below support and then closing above that day's opening, accompanied by very high volume on the downside and higher volume on the bounce. We would need to see breadth of 2to 1 or more and Up volume/ down volume at above 5x, preferably 9x. We would need to continue to break the shackles of down-trending moving averages and trendlines, and continue the upside march. 

For this to happen, we need catalysts, and not just the absence of an apocalyptic event. We need positives, suggesting that the economy is recovering, in such a way that pricing power is going to producers, but not so much that productivity cannot avert an inflation pickup. In this regard, we need to sequential revenue growth in the companies that can enhance productivity. We need to cure the very real perspective that our industries are laden with over-capacity and no pricing power. Only a stronger economy will help. Keep in mind, this market has had to deal with a huge assault on our belief systems. There is no confidence and no credibility. The investor knows they have to go it alone, but equally know they are not equipped. Where do they turn? Cash! 

The only good in this, is that pessimism grows like a weed, and we are technically oversold and in support. Interest rates are low, and the economy is starting to wake up. The Fed is on the long side of this equation. Normally, with these underpinnings, we would be on our way up. However, the insanity of the Middle East and South Asia and the global tentacles of those horrors overwhelm the positives. I feel valuations, over-capacity, and lack of pricing power are the underlying problem and economic recovery will not provide an adequate answer. I also think the lie of technology and telecommunication are out. Technology is a hugely cyclical business with limited entry barriers and way too much competition. The huge glut of fiber capacity needs video on demand to work. Well, forget it. We need some more bankruptcies. We need to bury capacity. We need to stop treating venture capital as an investment strategy for amateurs. We need to stop treating investments as a trip to AC or Las Vegas. Stop chasing high beta, bounces in waterfall stocks. Get real. 

The sectors we like all have thematic backing, revenue growth, solid payors, pricing power, and limited competition. Unfortunately, these groups may represent about 25% of market cap and will not, standing alone, move these markets. 

May 31, 2002- We got a positive reversal, after the oversold markets dropped into key support and held, followed by a rally, which did not exhibit animal passions. While the markets finished near the top of the day's wide range, the breadth and volume was uninspiring. It would appear enough investors were impressed the May lows held, but we are oversold, and pretty pessimistic, and it was probably time for a bounce. While we we have averted a lower low for the moment, the jury is still out. Starting with Cheney's warnings, the India-Pakistan nuclear threat, the exposure of chinks (how about a colossal sieve) in our enforcement armor, more accounting problems, debt downgrades, delistings, management greed and incompetence, unattractive valuations, and numerous other sacred cows butchered before our eyes, it is clear this market has a "wall of worry" to scale, but without the gear to do it. Additionally, it is Friday and caution accelerates as investors head for the golf course and beach.

We continue to look for revenue momentum, positive themes, and value. In this regard, we still like hospitals, drug distribution, generic drugs, hmo's, defense, satellite, and selected cyclicals. Regional banks are OK, and you get some yield as you fall asleep waiting for price action. Oil drillers are breaking down, as apparently the market reacts to declining oil prices. However, any incident in the Middle East or South Asia, could see prices spike. 

As the recovery unfolds slowly and reluctantly, high yield and emerging market debt should perform well, without an ominous specter of inflation spiking to discredit the notion. The indexes have bounced off support, that is no assurance that those levels will hold. Actually, a high volume implosion, cutting through that support, puking out the last stock in weak hands could set the stage. Sticking to the areas that are working (defense, etc.), and not trying to catch falling knives or picking bottoms, is a great idea. 

May 30, 2002- More potentially cataclysmic geo-political events are forcing futures into deeply negative territory. Yesterday, there was strength in hospitals, hmo's, and labs. Most other categories are firmly in the grasp of the bear. The only good news is that the bear's litany is now being sited thoughout the taxis and health clubs of America, and CNBC is being replaced by ESPN and Fox. Investors are tired of watching the market melt in a 70's redux. 

DGX, TRI, THC, PRX and others are showing strong "safe haven" status after an extended pullback. Technology and telecom are, at best, dead money, with semi-equipment vulnerable. 

Breaking 1,600 could suggest a retest of the September lows, let's say into the 1,500 area.. For the Dow, breaking the 9,805 area, could result in movement down to 9,600 or so. The SPX has key support at 1,050. We are getting oversold and depressed so these support areas may hold now, only to fail later after a countertrend retracement. 

May 29, 2002- Gold, RBOC's, generic drugs and some biotec are showing signs of life in an otherwise dreary market, the technical and fundamental characteristics of which have been well-documented here. This latest malaise appears traceable to VP Cheney's predictions of the inevitability of attacks. This pre-damage damage control implying that there is nothing that can be done, clearly has disheartened this fragile market. Implying that this is a war we cannot win has had a withering affect on confidence and given gold a huge boost, even though its economics and valuations, from an equity perspective, are dubious in the extreme. Now, investors can distrust the government, corporate America, accounting, all investment fiduciaries, etc. Investors are realizing that return of capital is more important than return on capital. Adding to the problem is the weakness in the dollar, which could fuel nascent fears of imported inflation, but actually benefit the results of multi-nationals, particularly the consumer staples, although their charts are unappealing. 

If the government is powerless, accountants are liars, corporations are just con games, brokers are swindlers, etc., confidence is clearly not an underpinning of this market. However, the more depressed investors get, the lower prices go, the more we are creating some value. The cheapest GARP stocks, albeit with massive hair and controversy, can be found in the homebuilders, specialty finance, retail p&c insurance, energy traders, healthcare facilities, and selected consumer cyclicals. It is an exceptionally narrow group. The disproportionate number of sectors and companies are not attractive from any vantage point, unless one participates in a self-con by viewing charts standing on his or her head. 

The DOW broke the 150 day moving average, which is bad. On the other hand, the dipping below that moving average has been a trigger point for a trading rally on other occasions. The NASD may be subject to more tech/telecom downgrades as Wall Street attempts to build "an honest broker" rep. 

May 28, 2002- For extended commentary about this troubled market, go here.  The NSAD continues to attempt to etch out a higher low, even though Friday's action shows how irresolute this market is. The Dow Industrials looks better, but still mired in a long0-standing sideways form of water torture. In looking a hundreds of charts and sectors, I see little to encourage or embolden the investor. Junk yields and emerging market debt may be an interesting place to hide. While a summer rally will occur, the question is from what level will the jump occur. Even energy and defense are showing signs of fraying around the edges, at least technically. 

May 24, 2002- For a Friday before a long weekend, the market has some significant elements to masticate. Sun's suggested its quarterly revenues lacked linearity which implies they are behind and will have to make it up. They have not guided down, but I would see this constitutes a warning they will guide down. Biogen announced its psoriasis drug was recommended for approval. This lit up the whole market and particularly the bio-tec sector, long a laggard. Also in the tech sector, Goldman downgraded AMAT and the sector based on overcapacity and valuation. Sun and chip equipment will ripple and rile the tech sector, even as bio-tec takes up some slack. Finally, GDP was revised downward by 0.2%, but this is old news. 

Technically, we had two strong late afternoon rallies, when the smart money supposedly buys. If we could continue to rise and close near the high before a long weekend, it would be a form of green light. Further, if we can establish another leg of higher low and higher high, we could be threatening to break the NASD downtrend line and moving averages. There are groups, however, that continue to show positive trends, like defense and oil service, and others, that are breaking out, like generic drugs. I would also like to draw attention to the underbelly of defense, like the satellite names, Orbital Science and Panamsat, that have put in bottoms and are on the rise.  

May 23, 2002- Durable goods orders were strong, revitalizing a market with "boat anchor" futures prior to the announcement. We continue to favor defense, which has had a low volume pullback. Energy, while dealing with a premium in energy prices because of possible disruption, is still valued attractively. If you think peace and tranquility will descend on the Middle East, don't buy energy. LMT, GD, RTN, LLL, and BA all warrant a look. While our recent downside action was undoubtedly aggravated by terrorist warnings, it is nevertheless important to establish a higher low and then move on to a higher high. "Walls of worry" are important to suppress sentiment, accentuate analysis, and create liquidity. NVDA beat the stimates, and with lower game box prices, may see its volume expand further. It has earnings and is reasonably valued, if you have to dabble in tech. 

Meanwhile, WCOM may have bought some time to work out its issues and could represent an interesting speculation, while PVN could be another turnaround, which has doubled since we first mentioned it.  

May 22, 2002- Several weeks ago, pundits predicted that, with the end to the earnings announcements, we would enter a news void that could prove helpful to those on the long side. However, into that news void flowed more terrorist threats, the prospects of India and Pakistan at war with nuclear weapons, continued stalemate between Israel and Palestinians, and a daily drumbeat of corporate malfeasance. As the fear factor escalates, investors raise cash. While the confluence of all these negative possibilities seems too far-fetched even for a Robert Ludlum novel, it is, nevertheless, what investors face as they decide whether to buy, sell, or hold. 

The major broad indexes must avoid cutting below the recent lows, and, if that is successful, break above the recent highs. We broke some mini-support, but that may have a product of the "howling" crescendo of warnings about imminent danger, then a huge technical breakdown. Our bounce from the 1575 low have been quick and apparently unsustainable. Defense and some healthcare were OK, but the rest of the market was very weak, closing at the bottom of high range day, suggesting the downside action is not yet complete. 

May 21, 2002- As the market reacts to warnings of terrorist attacks, it is important that we put in a higher low to confirm the new uptrend. AG of NY Spitzer has apparently secured a deal with Merrill Lynch which could get that depressed sector to bounce. However, keep in mind that lawsuits may proliferate into asbestos proportions, without having M&A, IPO's or secondaries to fund the settlements. 

Cheney's and Mueller's dire predictions caused the market to give up some recent profits. I suspect that the recent White House strategy is an attempt to put the population on notice, enlist their eyes and ears, and cause a drumbeat of putting pressure on the government to place our security over the civil liberties of many illegal aliens. Maybe they want to hear the people shouting down the ACLU, and stop strip searching 85 year old grandmothers, and putting the searches where they should be. I also think this warning is also lowering the expectations about the limits of government in a free society with open borders. 

Many market participants were hiding in cash, gold, and under the mattress. If you are obsessed with risk of terrorism, defense and energy are better places to hide. Why not make money while you are petrified. However, a threat will not paralyze the market for long. In other words, the fundamentals will out. As we have said, technology is overvalued, telecom has over-capacity in such abundance that pricing weakness will persist, and biotec is anyone's guess. However, that still leaves regional banks, cyclicals, defense, energy, and more to peruse for value. Lower your sights, but set your targets, and always have your protective stops. We are in a trading market, not a trending market. 

In terms of trading, NVDA, regional banks, defense, and even TYC and WCOM, as trades, warrant a quick look. Again, we must establish higher lows, or we could be facing some demoralizing and debilitating retests of recent lows. 

May 20, 2002- I do not want to spoil the party, but between the fact that we have economic, technical and fundamental problems, I think "what me worry" is out of step with reality. The NASD is facing downtrend lines, major moving averages, valuation concerns, a lack of real positive signs of accumulation, and historically poor seasonal factors. Meanwhile, the Dow approaches the top of its trading range, with many component like proprietary drugs, and tech facing valuation and growth issues. Meanwhile, many cyclicals seem to be stalled. Over-weighting in fixed income will only incur the possible fate of seeing the economy recover, deficits expand, and invested capital erode as yields rise. Staying on the short end is unrewarding. This presents a series of choices that seem the lesser of many evils. 

Therefore, it appears, until further notice that the Dow is still in a multiple year trading range, while the NASD is still mired under resistance. Using technical tools to identify targets of opportunity, setting targets and protective stops, on either the long or short side, makes the most sense. While I would not want to debunk all "buy and hold" opportunities that evolve from secular trends (defense, for instance), I think developing more of a mindset of short holding periods, specific targets, and higher turnover is important. This is not to say that there are specific areas that have recently been fabulous vehicles with specialty dining ( like Penara's and PF Changs) or defense (like GD of or LMT), it is ill-advised to put all your eggs in small baskets. Eventually, these stocks will hit a wall of overvaluation or failure to hit estimates.  

May 17, 2002- The NASD got through the first level resistance at 1,724, while the Dow seems poised for an assault on the 10,400 to 10,500 area. The NASD is taking heart from Dell's beating upwardly revised estimates. Also, bulls are reminding investors that PC's run in 3 year cycles and the Y2K upgrades are due for replacement, providing raw material for a positive chain reaction for many serving consumers and corporations. Bulls or bears can create cogent arguments at any point in time, which is why you must consult the charts. 

NASD is facing huge overhead but may have created sufficient breadth thrust to go higher, providing it is supported by "flash" reports that tech is truly bottoming and turning the corner. Meanwhile, the Dow is in a bullish mode with lighter levels of overhead supply. While the technical picture can positively resolve itself, it clearly has its work cut out for it. While moving to a market weighting probably makes sense, overweighting, given the perversity of markets, will probably assure that this is just a bear trap. Yesterday, S&P listed stocks that could face a cash crunch, including Raytheon. While the figures show a highly leveraged condition with limited tangible net worth, who really thinks that a critical defense supplier and a critical player in what we might have to do in Iraq and elsewhere, is going to be allowed to fail. The same can not be said for Reliant Energy, TYC, and others.  

May 16, 2002- Housing starts were down below estimates, while unemployment claims rose by 10,000, causing some disquiet in futures trading. Yesterday's trading produced the late afternoon swoon we expected, right where heavy overhead resistance comes into play. While we could break that ceiling on the NASD, it may take more than a mere bottoming. Meeting estimates than have been managed down to doomsday levels is not the basis for too strong a recovery in equity prices in tech, which are still valued as growth vehicles. While these might be periodic trading vehicles, I hardly believe they are investment vehicles. Look, DRAM prices have plummeted, while the IDC lowered fibre channel growth prospect to 10 to 15% from 50%. With QLGC AT 13X price to sales ratio, we have a clearly overvalued stock. On the other hand, this stock got oversold, and rallied around 40% in a week. 

Retailing and other cyclicals look like better bets than tech. Also, oil service pulled back quick on downgrades and a rumor at 2:10 PM that Chavez had been assassinated, subsequently proven false. This is the type of dishonesty, these already fragile markets do not need. As accounting falsehoods proliferate, spreading rumors to tank stocks well be an old game brought back to life, by those who feel that dishonesty is better than homework.  

May 15, 2002- The good news is that AMAT's performance did genuinely exceed expectations and the breadth and volume was very strong. Retail sales were stronger that estimated and that added fuel to the fire, which was, to an extent, more short covering and catch-up by money managers. Here are some of the issues. AMAT's sales are to the Intel's of the world who are changing their production to .13 micron. Sales are not in response to improvements in end market demand. Other comments from other industry executives suggest business is not that good. Additionally, valuations are not attractive and imply expected improvements in operating results of epochal proportions. AMAT currently trades at 41x 03 estimates. 

With the NASD, we also have the issue of overhead supply and downtrend lines, and down-warding pointing moving averages.  Last week we had pegged a target of 1,725 or so for this move. Maybe we can exceed that, but that would have to have fundamentally derived fuel, not short covering. Wish fulfillment only will take a market so far. The view of the Dow is much more sanguine with all moving averages vaulted and business conditions more favorable. Today, with respect to the NASD, I would expect some early selling, followed by some buying with a fade into the close. Such specificity in a call smacks of idiocy and arrogance, but that is my view. In terms of the Dow, it could continue higher even as the NASD adjusts to the facts of a bottoming, rather than a recovery. 

May 14, 2002- We are getting a quick double bottom, with retail sales strength empowering tech in early trading. It should be good for some upside action. 

We got a low volume reversal of Friday's "rats leaving a sinking ship", with Goldman Sachs issuing upward revisions to AMAT's earnings to be announced this afternoon. This created some gaming of the announcement and a desire not to miss another 7% runup. While this is creating a low volume trading opportunity, if AMAT misses and is cautionary (which it never is), then the market could get rocked. We still have upside to 1,725 before first resistance. Because of the mediocre volume on Monday, that first resistance is going to need a pickup in volume and breadth to suggest we can beat the overhead. 

Meanwhile, if  you do not want to play in tech casino (the telecom casino declared bankruptcy and closed its doors), stay the course with energy and defense, with some consumer staples in the mix. On the other hand, if you truly believe that peace, tranquility, multiculturalism, and neighborly love is going to descend on the Middle East, then I would not buy defense and energy. 

May 13, 2002- As Wednesday's monster rally recedes from our consciousness, it would appear it was nothing more than a short covering oversold bounce, with some shameless hucksterism from CSCO's CEO. Speaking of which, if that was a homerun result, than the stock should sell at less than the market multiple, say 20X EPS forecast of about .47. That gets you under 10 for the stock. If CSCO is overvalued, then the NASD is also overvalued and probably could lose more. 

The NASD and SPX have retraced over 66% of their Wednesday countretrend rally, and would appear poised to retest recent lows and then, potentially the September lows. I believe the Dow can avoid this possibility. While Chambers may like the tech/telecom backdrop, there is no other CEO who is expressing any sentiment other than the lack of visibility and lowering expectations. The only caveat is that Friday afternoons create a giant sucking sound, as investor take the wind out and head for home. That may have accounted for breaching the 66% retracement line. We'll see early. If you see the market clearly recover all of what was lost Friday afternoon, we might have a shot at going a little higher. But the underlying fundamentals are horrendous. The prices of DRAM's are plummeting, indexes are completely collapsing. Sadly, I believe the techs are heading lower. 

But, we are now seeing small caps showing topping patterns, along with regional banks. Consumer staples, energy, and defense are holding their own. I should note that which the indexes have been a horror show, the advance/decline line has been reasonably positive. Stay away from tech and telecom. Avoid companies with excessive debt. Especially avoid double leverage situations with huge intangible assets. They are going to have huge problems in the commercial paper market and rolling over debt. TYC and ADLAE are the exhibits, but there are many others. I also suspect, we are in the midst of a growing possible credit crunch for corporations. The lesson is that it is now critical to look at tangible book value, debt service, maturing debt, true leverage, quick ratios, burn rates, inventory and receivables growing at a faster pace than sales, etc. 

So, in the midst of this gloom, I come back to consumer staples including the like of Wendy's, defense, and energy. 

May 10, 2002- The market could not sustain, and gave back about 1/3 of its huge move on Wednesday. For the NASD, bear market rallies are the most vigorous, born of short-covering, and money managers trying to catch bottoms. Unsupported by real fundamental improvement in the tech and telecom sectors, Wednesday's action in the NASD was just an oversold retracement that is just underneath overhead. We need basing, double bottoms, low volatility, etc. to give us a sign. Meanwhile, the Dow is showing a perfect double bottom and looks well positioned for more upside. We would expect this "tale of two markets" to continue with defense, energy, restaurant, consumer staples, regional banks, and selected retailing providing continuing upside action. Finally, tech stocks are cyclicals, prone to obsolescence, and grossly overvalued. How many years are we going to see failed rallies? When you look at previous growth stocks like Waste Management, Home Depot, and Coca Cola, they went sideways and down for years before their prices and earnings caught up reality. 

Two charts, one good and one bad. You choose. So, in essence, I would rather buy GM, PG, UNH, UHS, WEN, ESV, RIG, RTN, GD, and LMT than MSFT, INTC, SUNW, and Q. Did I mention I like to sleep at night?

May 9, 2002- Yesterday, we thought the NASD could rally to 1,705 and the Dow to 10,220. I thought the rally would be explosive and include a lot of short covering, and underweighted money managers jumping in to protect performance against the indexes. Normally, a snap-back countertrend rally can fail in three days, if it is not accompanied by real and genuine improvment in the underlying business (that the market did not anticipate), to justify what are very high valuations in tech-land. Frankly, CSCO's performance seemed filled with weak revs, declining deferred income, a sub one book to bill, and a curious increase in gross margin, probably emanating from previous inventory write-offs. To me, calling a single a home run, does not constitute true improvement. It certainly does overcome the very cautious comment from IBM and Intel. 

Other executives from IBM and INTC did not see any home runs, implying they might have a problem getting to first base. But if a market is oversold, it will rally on the flimsiest of reasons. I would expect this rally in the NASD to falter in overhead supply anywhere from 1,705 to 1,800.  Normally, a countertrend retracement/correction would accomplish a 5% to 7% move and retrace 38% or 50% of the down-move. Guess what, we have already done it. This economy is not turning up in such a way that companies have pricing power and can claim the prospects of dramatic profit improvements. 

Previous winners in defense and energy and selected cyclicals were strong, while consumer staples provided the funding source for the rally. When this bear market rally in the NAZZ is finished, I would expect the markets to revert to the stocks that were already in uptrends. Defense and energy (drillers) are good ideas and under accumulation, unless, of course, Arafat pursues peace, and Saddam Hussein unilaterally destroys his weapons of mass destruction. I would rather invest on the premise that these two scum bags are nothing but the scourge of the earth, than that Cisco had a "home run" quarter. I would say if you did not get into tech at the open yesterday, it is too late. Damage of the sort we've seen needs basing, retesting, double bottoms, key reversals, etc. to suggest a technical bottom. We do not have those.

So, the net of this, if you are not in tech, don't get in. Stay with the winners before this bear market rally. With respect to the Dow, it is not in a bear market, but it is in a sideways wait and see mode, with enough positive sectors to make money. 

This busy chart of the NASD shows the downtrend line, the moving averages and resistance overhead, and the fact we are near a 50% retracement of the down-move since early March. Meanwhile, the Dow broke its downtrend line and stayed above the longer term 150 day and 200 day moving averages. The picture here is better, and would be quite strong, if one purged the tech components. 

May 7, 2002- This oversold market, particularly the tech dominated NASD, has some reasons to rally. CSCO's self-appointed "home run", Merrill's emerging settlement with Eliot Spitzer, and Worldcom's less than precarious financial condition all could get this market to rally for a while. At 8:00 AM, QLGC announced it beat estimates by 2 cents, another positive piece. An oversold market will ignore the negatives, which now include renewed terror in Israel, and IBM's CEO's sober assessment that '02 and even '03 are going to be extremely difficult. While one could easily quibble with the notion of "home run", at least they did not disappoint, even though there margin improvement probably owes something to selling "zero cost" inventory and beating up suppliers struggling for any business and willing to make price concessions. 

I would expect an oversold rally back to around 1,705 for the NASD, but the real action is still probably with defense, non-drug and biotec healthcare, energy, and selected cyclicals. I do not think this releases tech from the doldrums. The Dow might have power back to 10,220. Watch the breadth and volume for signs of the possible magnitude of the bounce. On the other hand, if this news cannot rally the market we could be approaching a capitulation. 

May 6, 2002- The "tale of two markets" continues as the high fliers of '99 continuing to fall precipitously back to earth. Tech, telecom, and bio-tec are going beyond round trips, they are now asymptotic (approaching zero without touching it). Meanwhile, the boring stocks investors hated, like G, PG, KO, hospitals, HMO's, defense, gold, etc. are demonstrating strong uptrends. The rout of the old high fliers is drowning out the new winners and causing the indexes to be pitiful. There are places to flourish, but not if one continues to hold a portfolio of SUNW, MSFT, EMC, RNWK, WCOM, AOL, etc. IBM's CEO revealed that '02 is not going to see a recovery, and '03 may be problematic as well. These are businesses selling to scared customers, with little access to capital, and in the capital spending cocoon mode. While we may get an oversold bounce from the productivity numbers, these stocks are still very expensive and very unappealing. 

The indexes, which are becoming a less useful way to view the investing landscape, are driving through support levels like a knife through warm butter. We would like to see a high volume, hit the bid capitulation, but we are seeing volume contract on down days. Investors in the old high fliers still appear overweighted in these sectors and until they puke them out like bad clams, we may not hit bottom. As DRAM's prices decline, it also appears business improvements are beyond the horizon. 

This is one of the few occasions when aggressive Fed action has not precipitated a rally in equity markets. Why? First, the dropping rates have precipitated rallies in those industries most likely to benefit like housing, retailing, etc. What's ailing the market- telecom, tech, and biotec- cannot be materially assisted by lower rates alone. These businesses are funded by venture capital which is dead, particularly without any exit strategy. The NASD is still dead money and bounces are for nimble traders. Investors should take the opportunity to, at a minimum, get to a market weighting or much lower. 

While you could make a case for a bounce back to 1,700 for the NASD, it will not go any further without signs of business improvement. The DJI broke its moving averages to the downside. May is a bad month, and the tradition continues. 

May 5, 2002- The jobs numbers spooked the market, lending some credence that the first quarter was merely an inventory bounce, and not sustainable. The market continues to pile into a limited area of consumer non-durables, healthcare excluding bio-tec and big proprietary drug names, oil service, defense, regional banks, insurance (except AIG), gold, and little else. Technology is still not cheap and is still not showing real signs of turning around. When those early signs start showing, the market will then have to grapple with whether cyclicals stocks like tech, should ever sell at more than 2 to 3 times revenues.  

While we are oversold and near support for NASD at around 1,600, it would appear a brief oversold bounce is the best we should expect. The stocks are expensive for what they are, are mired in downtrends and sit below down-trending moving averages. While we over the earnings period and sit in a quiet time where analysts and pundits can posit whatever self-serving myths they choose, they stocks are still not cheap, and are still mired in losses. Any self-serving remarks are designed to get managers out of tech inventory. In the early 90's INTC sold at a single digit multiple. 

May 3, 2002- Once again, the bounce looked feeble, but at the end the Dow rallied to close higher, while NASD is showing signs of high volume capitulation. On the other hand, this could be just another leg down. These are not cheap stocks, and the best you can say is that their businesses may be putting in a bottom. However, having has-beens conduct one more death spiral, does not constitute a bottom. While it is true these stocks will start moving before the reasons are obvious, it is not true that investors should pick a bottom. You need to see "key reversals", double bottoms, low volume pullbacks, and high volume downtrend breaks, etc. 

Let's face, markets buy earnings growth, or extreme value. They do not buy grossly overprice, highly cyclical businesses in sectors with excess capacity, no pricing power, dubious accounting, and seasonal weakness. Did I mention insiders are still selling these names. INTC sells at 8x Revenues, MSFT at 12x, ORCL at 7x, QLGC AT 17X, etc. So, wait for technical signs we have bottomed. We are not there.

Meanwhile, all is not lost unless you are addicted to high beta tech and telecom. Outside of the big proprietary drug and biotec companies, healthcare has been a big winner. Restaurants like PNRA and WEN have been really strong. Oil service has produced great results, as has defense. Each has a good story, real earnings momentum, and valuations that do not stretch credulity. They are in strong uptrends. While the Index averages look mediocre at best, there are some serious winners. Let the charts guide you. 

Clearly, the NASD will struggle to get much more than short covering. The Dow has bounced but appears to be losing momentum at overhead at 10,100. If the Dow can have a strong day on a Friday, closing near it high for the day, with strong volume and an unequivocal break of the 10,100 level, we could see the Dow and NASD diverge even more. The Dow did hold at the 150 day moving average. Keep in mind, the Dow includes IBM, INTC, MSFT, and CSCO. 

May 2, 2002- The oversold bounce looked seriously like another one day wonder, until mid-day, when the Middle East provided a mirage of Peace for the market to rally around. At the same time, the drillers rallied, apparently not convinced that the price of oil has a $5.00 war premium. Defense again was very strong. HMO's were amazingly strong, followed by the hospital chains, and all the diagnostic, testing, and devices. 

This process started with huge premium increases, which initiated outsized increases in fees for procedures. The legal liability issue continued to fuel tests which spilled over into the diagnostics. These stocks are generally easy to understand, have growing revenues and a client base that expands moderately but whose medical needs are expanding exponentially. As the market grapples with the strength of the recovery, it finds refuge in consumer non-durables with PG and KO carrying the ball to outlandish performance. 

This positive performance all relates to earnings power, pricing power, and revenue momentum. These groups have it, and tech, old drugs, telecom, do not. Nor are they so attractively priced that you are comfortable waiting for circumstances. Cyclicals sit in the middle with somewhat attractive pricing, but an uncertain economy. They are trading vehicles and are now oversold. UN, FDX, GM, HON, etc. warrant a look. Regional Banks have been and should remain reasonably strong, with dividend yield to comfort you on pullbacks. 

Dow good, having held at key support. The NASD cannot mount even an oversold bounce. The sequential jump in semiconductor activity (up 7%), buoyed by DRAMs and programmable logic chips. Whether this is inventory stocking or real final demand is a serious issue. So far, it appears more inventory increases than final demand. As the trading begins, watch ALTR, XLNX, MU, and STM for guidance.     

May 1, 2002- We are starting an oversold bounce, and yesterday's volume and breadth may suggest this will not be a one day wonder. However, it could be a three day wonder, taking it to overhead, which is just overhead. While the broad market countertrend rally may be short lived, the strength in defense, HMO's, drug distribution, energy, gambling, selected restaurants (PNRA and PFCG) and regional banks continues and proceeded right through the miserable April trading. 

Of the two indexes, the Dow looks better, having held at its 150 and 200 day moving averages. The tech and telecom dominated NASD looks horrific, albeit with a bounce probable. 

April 30, 2002- It is always darkest before the dawn. It would appear that the dawn may only bring an oversold bounce. May is a bad month, but normally we get a summer rally and that is the best we can hope for, as the economy stumbles, household names teeter, and the ravages of the recession become evident. There is a lag effect and much of the bad news is now coming to the surface even as improvements begin to take hold. However, cash looks pretty good. 

April 29, 2002- The market indexes, particularly the tech and telecom dominated NASD are firmly back in bearish territory. Important support was broken in the indexes at 10,000 for the Dow, !,700 for the NASD, and 1,100 for the SPX. Perhaps the fact it was Friday, and the normal tendency to square positions and the imponderability of international possibilities caused the break. Normally, this kind of negative action will reverse in early trading, but the direction for the index is not appealing. Why are we developing a 70's like malaise?

The market appears to embrace several facts. First, this is a false boon in economic activity based on inventory replacement, tax rebates, fed liquidity, rebate programs, bounce back from terrorist mindsets, etc. However, the consumer is debt laden, and expecting housing and the consumer to carry the ball is too optimistic. Adding to the equity malaise is a complete lack of pricing power, overcapacity almost across the board, and a clear profits recession. Further, corporate spending is showing no signs of improvement, albeit there are some mild signs of bottoming. At the valuations that exist in the tech world, bottoming is not enough to reverse the relentless downward momentum. 

While the indexes look pitiful, there are some heroes. First, small and mid-caps are doing well and appear to be in the early innings of outperformance vs. the rest. Further, hospital chains, HMO's, labs, drug wholesalers, defense and energy are in strong positive patterns. There are ways to make money. Cyclicals have pulled back and may be approaching buying opportunities. The much misunderstood Boeing was endorsed by Barron's and has cheapened up. There are ways to make money, but not with a "buy and hold" bias, and not with a large cap and market weighted portfolio. This is where technical and fundamental analysis come in. 

Technically, the long term view of the NASD shows the bubble and the burst. Is it over? After all this, these stocks are still overpriced, with no pricing power, and a perpetual need to reinvent themselves. In the early 90's, stocks like NOK and INTC traded at single digits P/E's. INTC now trades at 28x forward eps, and 8x revenues, while revenues have gone south. Fundamentally, therefore, unless we get an unexpected reacceleration of business spending, this area is still trying to find fair value. CSCO trades at 28x, SUNW at 32x, AMAT at 38x. These stocks all share declining revenues current losses, and limited prospects. On the other hand, for tech freaks who can buy nothing else, you could love QLGC at 44x and a Price to Sales ratio of 13.3x, even though revenues are down in the last two quarters, both year over year and sequentially. Such a deal.  

Meanwhile, the Dow is right at the 150 and 200 hundred day moving averages. While it is burdened by some tech and telecom, it also has a strong financial and cyclical bent. Will it hold? 9600 represents long term support and the long term uptrend line. 

April 26, 2002- Real GDP was up 5.8%, with final demand up 2.6%, about in line with recent estimates. The market is pleased that the economy is reviving, even in the face of the profits recession. Prince Abdullah says he will not politicize oil, while another advisor said they will. This "good cop, bad cop" deal is becoming a daily annoyance, and while the oil service area twitches around, the direction continues up, along with defense, and defensive areas like healthcare, excluding the old line proprietary drug companies. Again, the predilection for mid and small cap still appears to be strong. 

Meanwhile the indexes stay barely above support, seemingly awaiting the news that will determine whether we break down or bounce off support. If we break this support, it will excite more technical selling and may result in a climatic sell-off and a trading opportunity. The NASD is at a very critical juncture. A break here could send the index down to 1,650 to 1,600. We did have a strong reversal, but these have not had much predictive power recently, but it is worthy of note. 

April 25, 2002- After the bubble of the 60's, we had the long equity bear market where investors sought any alternatives- tax shelters in oil and gas, real estate, equipment, as well as second homes- to avoid the Chinese water torture of buying equities. Investors have an extremely low confidence level. Accounting gimmicks, $54 Billion write-offs, laddering of IPO's, cheerleading CEO's who get rich while selling stocks and exercising stock options as part of estate planning, hitting earnings targets that have been managed down, overcapacity and no pricing power for American Industry (except defense, hospitals, and healthcare insurance), etc. If a company truly has good business dynamics, like a P F Chang's, Raytheon, United Healthcare, Panera's Bread, Lockheed Martin, or is in a genuine turnaround phase like oil service, there is adequate money to propel the stocks higher. 

The point of this is this market continues to adjust to the bubble, the huge overcapacity, the lack of venture capital, the lack of morality, the need for far more consolidation, and finally the prospect for more "blood in the streets". What to glean from all this negativity? You can not buy the indexes (they are too congested with bad business dynamics). You must buy the charts and set targets and stops. Buy and hold must be approached very carefully. Do not fall in love with stocks? Why? Do the names JDSU, PFE, MCD, Q, WCOM, ORCL, etc. mean anything to you? Use trailing stops to protect yourself from being round tripped by your own laziness. This is a new world and fundamentally, while there is more than adequate liquidity and little alternative to equities, this is a tough trader's market with few opportunities. This means you must telescope your investing into groups that are performing, with an inherent overweighting in sectors breaking out, as opposed to arbitrarily buying "supposed" bottoms. 

Meanwhile, the markets could use to break the support levels of 10,000, 1,700, and 1,100 which would provoke accelerated selling and potentially create a climatic sell-off, which could then set the stage for an oversold rally. Today, may be the day that triggers the sell-off, as the futures are penetrating those support levels.  

April 24, 2002- We continue to get news implying the economy is slowing, the latest being the durable goods order, ex-defense. Perhaps, this explains why many cyclical stocks are pulling back, and why the housing stocks, benefiting from the prospect of continuing low mortgage rates, have rekindled interest. Housing, by the way, has established an unequalled sector performance of quarterly earnings gains and are the best PEG ratio and GARP stocks available. However, if the market sniffs higher rates, it will torpedo the stocks. That happened and now they are breaking out again. In a classic "good news, bad news" scenario, it reveals a growing concern about the depth and sustainability of recovery. 

The bearish arguments are starting to reverberate at the same time the indexes approach support at 1,700, 10,000, and around 1,100. While extended areas like hospitals and HMO's need to retreat, defense, energy, selected cyclicals (like GM), regional banks, consumer non-durables still look good for more positive action. Selected technology that is performing at or above expectations may warrant a look. QCOM, SANM, TXN, AMZN, ATML are a few that should be looked at. However, I would stay extremely underweighted in technology, virtually out of telecommunications, and with little exposure to the internet, except possibly AMZN, EBAY, and the Ticketmaster, Expedia type applications. 

In all cases, I would have a trader's mentality because we are in a trader's market with an apparent sideways consolidation. Set reasonable technical and fundamental targets and use stops.  

April 23, 2002- The market continues to let the air out. Support would appear to reside around 1,700 or so on the NASD, around 9,950 on the Dow, and 1,100 to 1,080 on the S&P 500. While we appear to be oversold, that is not the case in the market drivers. Healthcare, particularly HMO's and hospitals are, for the most part very overbought. UNH, for instance, is 13% over its 50 day moving average. The old economy, particularly cyclicals and banks, appear to be cracking and coming back to support. 

Telecommunications and tech are witnessing an "evergreen phenomena" relating to the impending turnaround. For approximately one year we are hearing the turnaround is two quarters away. It must be two quarters away from whenever the question is asked. Tech is still not cheap, and either is telecommunications. While this may prove accurate eventually, it would appear the market is tired of this game. We have so hugely overbuilt that it will take some significant business failures, a renewed economic recovery, new applications, and increased capital spending to reinvigorate these moribund, but critical sectors of the American economy in the knowledge age. 

Wherever you look, stocks are either breaking, mired in horrible bear markets, or grossly extended. The first reaction is to just go to cash, and then go fishin. This is a seasonally poor period, as well, and this is not the time of year for capex to pick up. As someone who prefers the long side, because it is easier to execute, I find the situation difficult. To become depressed, along with everyone else is to ignore some vital elements. We are approaching support in the index averages, and the Fed is on hold. While some are areas are overbought, defense and energy still appear reasonable. Some retailing is reasonable. Hospitals, after a pullback, could be bought. Even the regional banks look reasonable after a little pullback, which would nick the moving averages or break uptrends. 

April 18, 2002- One day up, one day down. While companies are straining to make their numbers with pathetic top line figures, the commentaries are suggesting a bottom, but no lift off. The pop in cellular appears over with NOK announcements of less than expected second half results. The technology mini-bounce appears to be encountering trouble before it can get started. Energy was extremely strong, but if you believe that we will have peace in the middle east then energy and probably defense will sell off. On the other hand, I may have a bridge you might be interested in buying. 

Boeing was overdone on the downside, as its good-will writeoff, and conservative option accounting (and rising stock price) penalized earnings. Same with UTX. UNH announced great results borne of extreme increases in premium (what happened to cost control). While these stocks are parabolic, the hospital chains are consolidating and putting some extreme pressure back on the insurance companies. It takes quarters for these factors to influence earnings and price, but I would rather own UHS and THC than UNH. Anyway, the market's inability to sustain a rally is suggesting we may have more downside in the offing. 

April 17, 2002- Wireless, chips, energy, finance, retailing, were very strong. Wireless has gotten good news starting with PWAV (wirelss repeaters), and then TXN. Some optimism about the new NOK handset was enough to spur a huge rally in this very oversold group. To an extent, this industry is consumer driven, not dependent on the nascent corporate spending cycle. Names like AMT, NXTL, and SBAC were up around 14% yesterday. In essence, they had a good year yesterday. Names like TQNT may still have room to run as it vaulted resistance at $12.00. NASD may be outperform for a little while but it still has massive overhead and moving averages to contend with. If the oil service names can beat their recent highs on a closing basis with strong volume, they could be in for another 10% run off that breakout. 

The NASD overhead is just above, so I break out could trigger some serious add-on buying. Watch the breadth and volume and close vis a vis the day's range for guidance on the strength of this oversold bounce. Also note the large potential double bottom with the neckline at 1,921 and a reasonable target after that of around 2,050 before exhaustion sets in. This possibility may be aided by the fact the warnings should be over and we should more meeting and beating of estimates. 

April 16, 2002- TXN announcement about improving business conditions, and some buy recommendations on selected tech has gotten the very oversold group to rally. Meanwhile, the old economy and banks are showing "double tops", poor accumulation, and lost momentum. We may have "a meek shall inherit the earth" rally for the downtrodden funded courtesy of more selling in names like CAT. Fleet's announcement of a complete restructuring of its business could rally these shares. Meanwhile NASD has held in support, but the Dow Jones Industrials has broken below its 50 day moving average. 

April 15, 2002- We were seeing the setup for an overbought breakdown in energy, propelled by a supposedly overpriced commodity coupled with turning on the spigots in Venezuela with the ouster of Chavez. Coincident was a rally in transportation borne of the expectation that energy would retreat into the low twenties. This apparent scenario was abetted by some confidence in Secretary Powell's peace mission. Oversold tech was holding at support around 1700 on the NASD, and the reversal on Friday, showed again tech wants to bounce. Sentiment toward the group is awful. Everytime we get a bounce, however, Janus and their ilk, are ready to step and dribble stock into the market. Financials completed what appeared to be a breakout from a bullish flag pattern, however, Citicorp missed the numbers and this may stop this bounce in its tracks.

Weekends can definitely screw up some good setups and it is why traders normally exit positions before the weekend. However, this market rallied to the close, suggesting maybe tech is due for a bounce. However, there is too much overhead and too little good news to aruge for more than a bounce. Traders might get some action however. 

Meanwhile, I  believe energy and defense are still obvious choices in this volatile environment. On the other hand if you believe in tranquility in the Venezuela and peace in the Middle East and Hussein letting inspectors in than this may be the wrong time. 

April 12, 2002- The last vestige of the halcyon days of the 90's has been slain. GE, which managed to grow earnings faster than its top-line, did it again and the market puked the stock up. While GE has many excellent components, it is overpriced and clearly manages earnings. It is so big and complicated, the only issue is how not if it manages earnings. Additionally, it is reported that IBM is being investigated by the SEC. IBM has grown its earnings in the face of revenue declines. Much of this has been by changing pension return algorithms rather than growing operating earnings. Merrill Lynch getting exposed as research for the purpose of generating underwriting fees not serving its investing clients is adding to the crisis of confidence. Meanwhile, ATT advertises a reverse split. If you can't get your stock price up organically, reverse split it. The reports of no bottom or turnaround in tech is adding to the growing malaise. This is all enough to make even the most cynical and jaundiced of investors seem niave.  

While all seems lost, there is still value in energy, defense, retailing, manufacturing, etc. These are real businesses whose numbers are more believable. Additionally, it may be time for large companies to disaggregate and get small enough to understand. 

Meanwhile the NASD approaches our target of 1,700 and the Dow is showing signs of breaking its 50 day moving average. Much of this is the big nasties IBM, Cisco and GE. Meanwhile the SPX broke below all its moving averages. Meanwhile, we had an NYSE oddity, where the advance/decline was negative to 2 to 1, but up volume beat down volume also by 2 to 1. This is actually good news and implies buyers are more enthusiastic than sellers.  

April 11, 2002- We will face some early morning profit taking from yesterday's big economy, big cap, non tech and telecom rally off oversold levels. Many cyclicals have done adequate retracements to 50 day moving averages and appear likely to retest recent highs. Many are still reasonably valued. Defense, energy, industrial, materials, and retailing were very strong and should have more upside. Critical to future direction is the extent to which these stocks can take out those recent highs. 

The Dow retest would take it to 10,610. The values are attractive enough to take the old economy stocks higher. Meanwhile, the NASD appears wallowing with the Bear, trading beneath downward sloping moving averages and massive overhead. It does not help that Tom Siebel, who said in January that he saw signs of recovery, is now saying he does not see signs of recovery. These stocks are back in the hands of the momentum crowd, except now they are trading them on the downside. 

April 10, 2002- By many measurements, the NASD is back in its Bear funk, while the Dow continues to be in a tepid bull phase with a sideways consolidations. The NASD is below its movings averages while the Dow is above its moving averages. It is apparent that tech and telecom are still establishing a bottom, at the same time investors are wondering why they should pay premium prices for techs with their huge risks of obsolescence, dubious accounting, overcapacity, lack of pricing power, etc. The NASD has support at 1,700 and is getting oversold, but that is about the only positive visible. Given the outlandish outperformance of the NASD, we could see the Dow/ NASD performance divergence continue. Remember, we witnessed a serious bear market in the Dow, even as the NASD witness its blow-ff top. We are now reversing this. 

What this indicates is that sticking to the old economy, focusing on value, with an important allocation to small-cap makes sense, rather than chasing high beta, has-beens. I am going to show Bollinger Bands in the charts. In trading markets, they are very useful in quickly showing overbought and oversold situations and trading channels. In trending markets, like most of the 90's, they were of little use because they would get you out of the stock and never back in. Stocks, particularly the high-fliers, never would get much below their 10 day moving averages. 

April 8, 2002- Clearly the market has issues relating to the Middle East, the rising price of energy, overcapacity, uncertain extent of recovery, dubious accounting, lack of pricing power, a profits depression, etc., etc. The more investors can sight the elements comprising the "wall of worry". and the more they have gone to cash, bought puts, and and arranged shorts, the closer we are to the end of this retracement. Compounding this issue, is an obvious dichotomy in the indexes, with the Dow Industrials trading above its moving averages, while the NASD is trading below its moving averages. Additionally, the Dow bounce off its 50 day moving average. The last 15 year chart of the Industrials shows the length of the current sideways consolidation and shows that it might need to continue to allow the broader trendlines to catch up with the gigantic move of the 90's.

April 5, 2002- My comments from yesterday still apply to what appears to be an on-going corrective process. It is easier to make cases against stocks and underlying sectors than for those sectors. Either valuation, or questionable recovery, or overcapacity, or lack of pricing power, or stricter accounting, or whatever, muddles and vitiates the case for owning stocks. As I have said, only defense, energy, and hospitals seem somewhat immune to the bear case. These areas seems best poised technically and fundamentally. Additionally, some of the later stage cyclicals probably have some more upside, albeit with the early stage names like retailing, seemingly spent technically and fully valued fundamentally. However, these are not high beta space shots, and energy is highly vulnerable to price volatility. While prices above $18 to 20 should underpin positive economics for the oil services business, the equity market is highly sensitive to oil prices.  

In the past, the specter of economic recovery and higher mortgage rates would halt the housing rally. However, this industry has put together many quarters of growth and sells at 8x earnings. If you believe any economic recovery will only trigger minor increases in inflation and interest, it is possible investors, searching for GARP, will accord these names higher multiples. Most of the names have corrected and now may be a time to give it a shot. I believe they will, at least, try to rally back to the recent highs. A failure would suggest a dangerous double top.  

April 4, 2002- The market appears to be correcting based on continued lack of tech visibility, a weak March level of economic activity, and some overbought/extended valuation issues in many cyclicals. Generally, market sentiment had gotten dangerously bullish and completely ripe for what is happening. In this instance, bad news is horrendous, and good news is bad, and stocks feel the pull of gravity. Adding to this recent malaise, is the Middle East, the lack of tax rebates to fuel the consumer, and the Fed moving to neutral status, even as the nascent recovery seems stuck in near-term neutral. The SEC is finally looking into financial reporting and forcing honesty. What a novel concept. Intangibles, capitalization, hiding debt and expenses, etc. are all coming under scrutiny. Investors are looking for alternatives to stocks and financial intermediaries and dishonest managements are part of the reason.  

When markets work off overbought conditions, it takes time and cautious accumulation of value to position for the next up-leg. The problem is who will participate in the next move. I believe the problems of the Middle East will evade quick resolution, and energy and defense must be considered. Commodities may be dicier if the recovery process is slowed. Is there anything to buy in the meantime? Aerospace, and hospitals look OK. The other good news is that we are going from positive to negative in short order and may be due to bounce soon. 

The NASD clearly broke the moving averages and while it held over the recent double bottom neckline, it is still possible to hit the 1,714 bottom. We have myriad downtrend lines and moving averages to vault the technical damage that has been done. Checkpoint's announcement this morning will fuel the downside. The Dow broke the 10,250 area and looks to be heading for the 10,088 area as a next possible step. 

April 3, 2002- In typical Wall Street fashion, influence makers wait until the quarters over to tell the truth. First, PSFT, and then Goldman Sachs lowers estimates for software companies, including bell-weather Microsoft. The NASD clearly radiates concern that it has "jumped the gun" on the tech recovery. Energy and metals again were strong, as economic timing would suggest. The situation in the Middle East adds impetus to defense, energy and gold. By the same token, the vertical energy prices are starting to punish cyclicals, particularly transportation. Failure to have overweighted exposure in defense, energy, and metals could have led to poor results. 

The NASD broke the 150 day moving average, and we now reside in another critical area which, if it does not hold, could suggest a retest of the February lows around 1,710. If MSFT is a bell-weather, then we will have a retest. Meanwhile, the Dow is still trading above it sideways moving averages with a test of the recent 10,250 apparently a possibility. 

April 2, 2002- We appeared to have a "just kidding" reversal yesterday, particularly in high beta techland, where names like QLGC, BRCD, VRTS, and SEBL showed strong price action and big price ranges with closes at the top of the range. Last night at 10:47 PM, PSFT announced they would miss estimates by a penny. This morning the stocks is off at least 20%, and is dragging technology with it. PSFT has not passed the simple smell test before, but the whole industry will get splashed by the skunk. 

Yesterday, energy and defense were strong for obvious reasons. Technology, particularly networkers, were strong. Again, it would appear that the futures are pointing materially down. We seem to be in a low volume state of confusion, where little works, other than energy and defense. Many cyclicals, including retailing, are losing momentum, while tech investors are extremely nervous, and seem playing with tight stops. On the other hand, the NASD has shown signs it will ignore the news and look to a brighter day. For instance, CIEN and EXTR, in the beleaguered networking group, have produced huge 25% gains in the recent weeks. They are being accumulated and some are seeing a bottom in the business and the stocks. Additionally, some of the lenders to marginal credits, like PVN continue to show stellar results, with this stock up over 100% this year from its lows. Selectivity, tight stops, and selling when stocks are extended, is critical. Having some successful value plays, including technology, is also key. 

The NASD broke over the moving averages and would appear to be heading to a test of the 1,933 area, where a break above could lead to the 2,000 to 2,200. The question is whether this positive trading can take place with a galeforce headwinds of warnings, disappointments, and lack of visibility. Additionally, the tax of higher energy prices and the possibilities of chaos in the Middle East, will add to the wall of worry. These items were generally known yesterday when the NASD reversed. 

April 1, 2002- The markets retreated to logical areas of support on low volume and bounced off on good breadth, if not strong volume. Now, the Dow must retest recent highs, and the NASD must break above significant overhead with the first milestone being around 1,933. It must generate that effort in the face of chaos in the Middle East, which could easily spawn various nightmare scenarios. The mildest scenario is rising energy prices which could impede economic progress and hurt recovering profits. The possibility of terrorist acts could retard the renaissance in the travel and tourism business, which has come full cycle. 

While these events could derail the indexes in their bounce off the pullback lows, it is clear the energy and defense, two stalwarts of the recovery, should continue to hold up even in the face of the nightmare scenarios. Other than that, there is risk from events, and from valuation, and from a recovery which is yet to prove it can cause a trampoline effect on earnings. Only a trampoline could justify many equity values. This is particularly true in technology, where may prime names like AMAT sell at 10x revenues. With overhead approaching and values extended I would be wary of semiconductor equipment stocks. I would rather own GR, LMT, or RTN at reasonable multiples of earnings. 

The NASD held at the 150 day moving average, but now confronts the 50 day and 200 day moving averages and several downtrends. Equally daunting is the imminent retest of the recent highs of the DJIA around 10,610. The other option to a new trend is a low volume, low volatility sideway pattern to buy time to let the Middle East, the economy, and earnings to provide a glimmer of visibility. 

March 26, 2002- We are quickly approaching our retracement targets of 1775 to 1800 on the NASD and 10,250 on the Dow. I am not sure that this will be enough to reduce optimism, and change the market perception to a bearish scenario. The bearish scenario is unfolding, but needs to be ingrained in the public consciousness. Specifically, the Fed will be raising rates, which will stifle a weak recovery. Corporations have no pricing power and visions of a highly leveraged pop in earning will not materialize. Further, technology spending is not going to get untracked and we face more bankruptcies. Anyway, get your purchase list together now. I would look at cyclicals, financials, energy, and only selected technology. If you have been reading our comments, you will have enough cash to nibble at these stocks that are still in their uptrends but around 10% to 15% off their highs. 

March 25, 2002- We appear to be in the midst of a process to lower optimism, raise cash, come off overbought levels, and build in some prospect of Fed rate increases. While bulls would like this to occur overnight, it will not. Look that the pullback occurs on low volume. Also look for some key reversal days to suggest a stock, a sector, or an index has finished correcting. Be patient and do not go sailing when there is no wind. Have the cash to catch value when the process appears complete.  

Technology is correcting and telecommunications never got back on track. Energy is getting whacked after substantial gains off a SB downgrade. I would like to reenter at after a reasonable pullback. Analysts hardly ever call tops to stocks or markets. Defense still look strong. Cyclicals and financials are retracing and should be targeted for purchase as the corrective process unfolds. 

It would appear the NASD is heading for 1800 or so, where the 150 day moving average and support appear to exist. Failure to hold that level would suggest a retest of the late Feb lows. Failure there could imply a possible retest. I don't believe it will come to that, however, this is a very heavy chart populated by richly valued stocks in need of a serious tech business re-acceleration. 

We have indicated the next support area sits around 10,250. It is important that bullish feelings be lowered, that cash be raised, and that economic data continues to show improvements. 

March 22, 2002- We have been worried that an overbought, extended, ebullient market with the Fed going to a neutral bias, would only lead the market down to areas of firm support. We believed that support would lie around 1800 for the NASD and 10,250. On the apparent way to those levels, the NASD staged a sharp, but lowish volume reversal. The NASD is still in a downtrend and below its moving averages with overhead congestion that is not trivial. Meanwhile, imminent Fed action and Roadway's low tonnage figures underscored more weakness in cyclicals, which also suffered from "housing bubble" talk. Most housing stocks are at support and uptrend lines. If these levels are broken, it could speak volumes about earlier stage cyclicals. Normally, cyclicals perform poorly in the 12 months following the Fed initial rate increase. 

Energy continues to be a stellar performer, backed by higher energy prices, heightened exploration, and fears relating to the Middle East and loss of Iraqi oil. 

One final thought is that Friday's normally are good signposts for buyer conviction. I suspect that if we cannot gain more upside action from the NASD, we will continue to retreat to our targets of 1,800 for NASD and 10,250 for the Dow. The NASD is closer to support and is not really overbought. On the other hand, it's recovery from its downslide is less imminent and certain than the traditional "old economy" names. 

The reversal in the NASD did not break the two downtrend lines, however, breaking the first could suggest a "mini-rally" to as high as 1928. The Dow does have support in this whole area. But that same support is also resistance. The one shining light is that the Dow is overbought, but the NASD is not. 

March 21, 2002- The market has gotten overbought, and it does not matter what the news is, the market was tired. The robust housing news continued the bond sell-off, and it rippled through the markets creating a broad decline on lower volume. Recent winners in technology, finance, and cyclicals were beaten up. We were poised in a low volatility situation and, like a 3 and 2 count in baseball, something had to give. Since were extended and sentiment was overconfident, the direction was down. The Dow Industrials has support at 10,250 while the NASD heads for 1,773. I think this is a part of the basing process, and should not be cause for panic. There is an old rule that until those moving averages have flattened and started to turn up, you have not truly changed course. 

10,200 appears a logical level for the Dow. This should raise cash, shake out weakness, and reduce sentiment. You will note the moving averages here are beginning to point up suggesting the central direction is up. In the meantime, cash and a shopping list should be in place to take advantage of the impending sale. 

March 20, 2002- I want to talk about risks this morning. First, we have a valuation risk across a broad spectrum of sectors. Despite low interest rates, stocks are arguably above fair value, with an earnings yield of 4%. Second, technology and telecommunication, viewed as leading edge industries in the knowledge age, are beset with massive overcapacity and a capital crunch thwarting innovation. Third, from a technical perspective, we are overbought and most averages, save the small cap indexes, must vault substantial overhead from an overbought condition. Fourth, the market has benefited from Fed rate reductions, which appear more exposed to risk of rate increases. The history of trading suggests that only healthcare, and consumer non-durables fare well in the next year. Parenthetically, many investors are already bidding up healthcare and consumer staples. While one can argue there is no inflation and no need to raise rates for the near-term future, the market believes rate increases are imminent (say May).

In this environment vulnerable to correction, and sector rotation, what should one do? First, cash should be at a healthy level. Second, consumer staples and healthcare should not be ignored. Third, small cap is outperforming every other category and has broken to all-time highs and hence is not exposed to the huge overhead supply facing the NASD and the Dow. If the economy is improving, some high yield areas including emerging market, may witness spread contraction even if long rates rise more. Regarding the last point, it is possible long rates stabilize if Fed funds are increased. 

The bulls would argue that a sideways consolidation is enough and we will breakout to the upside. Those levels should approximate 1,933 on the NASD and 10,700 or so on the Industrials. At this point it is not clear whether the market has enough ooomph without some sort of pullback. 

March 19, 2002- The market fish-tailed its way to a higher close on the NASD and a continuation of the pullback in the consumer cyclically dominated Dow Industrials, with biotec providing a slight haven for proceeds from selling the front-runners. Stocks like GENZ, CAH, MCK, THC, and others clearly are absorbing some of this benefit. I would still regard the economically sensitive as the place to be, but would wait for slightly more of a pullback. Then, I would be wary of failures at the recent highs. Until then, we are seeing uptrends in cyclicals and financials. 

Energy is a very strong group, which could be negatively impacted by a peace agreement in the Middle East and no action against Iraq, accompanied by inspectors reentering the country. If this unlikely scenario unfolds, energy would be setback to the next support. However, the underlying technical trend and fundamental logic is still with energy. I also profess to a soft spot for Qualcomm, which is it can vault recent highs could be on its way to 50.

The NASD performed a typical 1-2-3-4 pullback and appears headed for a retest of 1926. Meanwhile, the Dow is doing a sideways correction with weakness in the recent winners and some slack absorption from healthcare and consumer non-durables. 

March 18, 2002- Economic data got the market to resume its upward path, but I think the bigger news is the sector rotation. While, on the face of it, it would appear the market has completed the brief pullback and is headed higher. However, we are still overbought and I question how much further the indexes can go. However, most investors do not buy the indexes, they buy individual stocks and sectors.  

Recent day's trading has demonstrated relative strength in banking, media, energy, biotec/drugs, other healthcare, credit cards and selected retailing. Meanwhile, technology has show some more pullback, together with low volume retreats by cyclical industrials. Energy continues to show strength. I would assume the cyclicals are not finished, but need to test support and 50 day moving averages. Be on the lookout to reenter. Meanwhile, healthcare is the recipient of the proceeds of cyclical sales.

These bounces could just be a head fake in a much needed correction. This could set up a failure. On the other hand, is the Dow Industrials can vault 10,617 on a closing basis on high volume, we could be heading higher. 

March 15, 2002- Yesterday's low volume neutrality does not complete the corrective phase. We are overbought and overconfident, and three day pullback followed by an upside move would probably precede a failure at the recent highs and a pullback to 10,180 to 10,300 on the Dow Industrials and 1,812 to 1,855 on the NASD. There has been a move out of cyclicals into more defensive areas like drugs (generic and proprietary), which I do not believe will survive the correction. Finally, it would be healthier for the market to do the real correction now. "You can pay me now or pay me later". Keep cash levels high to buy cyclicals pulling back and energy names that are correcting back to moving averages. These will continue their uptrends after the air is taken out of the balloon. 

March 14, 2002- We clearly are in the midst of an overbought pullback to levels of support. A Goldman Sachs survey indicated IT spending would remain depressed, throwing some cold water on the huge moves of technology. Additionally, pundits are correctly pointing out that chip equipment stocks normally follow chip stocks, and yet, they are up substantially more than their customers. Nokia wireless disclosure also took the wind out of the wireless sails. This "glass is half empty" view with a market that has just lost its upside momentum. 

Importantly, energy showed a minor key reversal day, suggesting the long outperformance may need a break. Biotec, hospitals, drugs, and other defensive names were strong. I would prepare my list of economically sensitive names, and technology that you would like to buy on this pullback. Bank stocks performed reasonably well. 

The real question is what logical parameters exist for the pullback. The Dow Industrials are more extended and a pullback to the 10,200 to 10,300 area would be reasonable. On the other hand this could be a pullback and be over today. Unfortunately, that would not give the market a good base to launch an assault on the old highs or offer attractive entry points for names like UTX, TXT, GM, CAT, etc. That level would represent a 5% pullback and take you back to a breakout point.

The NASD was is confronted reality and the chips and chip equipment are leading the reality check. The dubious quality of spending pickup and valuations are causing the problem. 1,812 to 1,855 is a logical pullback. While a retest of the lows from February is possible, I think it will not get that far. 

March 12, 2002- More accounting disclosures show, to my mind, mischief in managing earnings. From gain on sale accounting to front-end profits, to de facto capitalizing development costs the Manhattan Telephone book disclosures should serve to sober up investors who now confront an overbought market. While all the indexes have vaulted the moving averages, we would now expect a pullback to those moving averages. The collapse of Nikkei last night after an obvious reality check will not help. Finally, the failure the NASD to hold yesterday's rally may suggest a need to regroup and get real.

I would look to buy the strongly up-trending industrials on a pullback. The technology area is a trading vehicle until there is some more real evidence of improvement. Otherwise, these values are akin to Volkswagens selling for $100,000.

Technically, I would conclude that the upside potential is still there, but the new accounting issues will take a period to digest. Trading back is an opportunity to acquire trending names. However, the risk is probably as much as 5 to 7% with great risk in the high beta tech names. 

March 11, 2002- The Dow appears to have entered an overbought period of under-perfromance vs. the NASD, which is rallying strongly spurred by short covering, under-weightings and indications we may have bottomed. The NASD would appear to have sufficient breadth and volume to justify a shot at 2,000 to 2,200 before it will need to pullback and retrace some of what is becoming a large move. The Dow is stretched but has an apparently improving economy and higher expected earnings on its side. 

Fundamentally, many "old economy" Dow stocks appear attractive "new momentum" stocks, although they are overbought and need a breather. The NAZZ appears unattractive fundamentally, but still rallying and this technical aspect cannot be ignored. The high beta names look most likely to ride this wave in the NASD. For a quick ride, SEBL, SYKE, EBAY, PSFT, and ALTR, SANM, and QCOM warrant a look. But act quick. However, if you want an enthusiastic endorsement of technology and telecommunications, you will not get it here. What you will get is a sense this could go further. For those that would not touch technology and telecommunications, I would wait for GM, BA, GD, EMR, TXT, UTX, and SII to pullback before applying new money.  

March 8, 2002- Payroll numbers surprised to the upside. Economic strength surprises, and proposed investment credit for capex may sustain market upside even in the face of being stretched and overbought. We'll see. The Independent Power Producers like MIR, CPN, and RRI appear cheap and ready to be recognized. 

Trees do not grow to the sky, and demolished stocks need a lengthy basing process to get their technical and fundamental act together. It is Friday, when profit taking and position squaring normally take place. Putting new money to work after strong moves in the averages may best wait for a pullback. There were many closes below the mid-range of trading, and a failure of the NASD to vault the moving averages. 

The NASD has achieved a two thirds retracement and a failure to break above the 50 and 200 day moving averages. We probably have risk back to 1,800 or so. Let's face, an approximate gain of 20% in chip stocks without real commensurate improvements in business, may be jumping the gun. The Dow is in new overhead and may have risk back to 10,232. On the other hand, both averages could trade virtually sideways for a while and generate the oomph to push onwards and upwards.

March 7, 2002- This rally is courtesy of improving economic data, a sense we are bottoming in technology, short covering, and desperate money managers deploying high cash positions in order not to be left at the station. As the Dow stretches beyond the moving averages, the NASD stretches to get above the moving averages. While the Dow appears headed for the 11,200 area, it is overbought and many components need to retrace. The reverse is true of the NASD, which, based on sentiment and technicals, may be ready to reverse its underperformance against the Dow. 

A rising tide lifts all boats and this market is now lifting wireless, energy traders, marginal chips, sub-prime lenders, and optical chip manufacturers. While this may represent a reversal for some of these names, it is probably a rally back to the 50 day moving average or downtrend. This stuff is for nimble traders. We are not seeing an adequate basing process in many of these names, unless you take a Providian, or an American Tower, dogs that could and have produced some recent eye-popping price performance. 

As for the industrial names, I would wait for the pullback to jump back into names like GM, UTX, TXT, DE, etc., although GM and TYC look like they have further upside. Brokerage names are just breaking above their moving averages and GS and MWD warrant a look. Finally, Sony (SNE) looks ready for some outperformance, after a long downslide. 

March 6, 2002- It was a dog day in March. But the dogs were king for the day. There were the sub-primes like PVN, MXT, and CCR. There were the energy traders like CPN, AES, PWR, and DYN. There were the fiber chip guys like JDSU, AMCC and others. These long forsaken stocks have been acting very well and and have gotten right in short order. The market is looking for ideas and is casting a broad net. Meanwhile, retailers and drugs were weak, but high beta techs like the chips and chip equipment continued their upward march, while industrials gave some of their strong gains back in a little profit taking. 

Barring nasty surprises, the NASD has some room before overhead supply and reality stop the advance. Meanwhile the Dow has risk back to the 10,220. The bifurcated market continues with sector rotation quite violent. Stocks breaking out are achieving reasonable price objectives in nanoseconds, so being nimble and staying close to the charts could pay big capital gains. 

March 5, 2002- In a nutshell, it would appear that currently stylish industrial stocks, like DE are seriously extended and due for some performance eroding pullbacks. On the other hand, it appears that technology and financial issues may run some more after starting what appears to be an oversold bounce. These internal dynamics may cause the index averages to pullback or go sideways, but internally there will be sector winners and losers.

Looking at the charts we see an over-extended Dow Industrials and an oversold but bouncing NASD with substantial overhead, but some room to run. Investors should consider raising some cash in industrial stocks and redeploy into some techs and financials. While the Dow looks like it could approach the old highs, it would be unprecedented for that to happen without some backing and filling. The good news is that the DJIA has scaled huge amounts of resistance at 10, 400 which might represent logical support on a pullback.

Meanwhile, the NASD has a double bottomand a strong break above the 150 day moving average. However, there is a huge amount of overhead, and valuations, without some more signs of economic activity improving, are not cheap. 

March 4, 2002- Wonderful day for those long the markets. The better than expected NAPM data showing the economy expanding, together with other positive data, is underscoring how shallow the recession was and that economic activity is starting to percolate. Breadth was better than two to one and volume was OK. The fact the market rallied on a Friday was a great sign, since Friday's have been weak as traders and investors decide they want to reduce their positions. 

The bigger issue may revolve around whether the techs and telecoms are completely oversold, and so-called old economy/ traditional value names are completely overbought. Option activity and relative performance suggest technology may be ready to follow-through with a bounce. Additionally, financials have underperformed and may be ready to show some positive action. For those with no tech/telecom exposure, we would suggest moving to close to a market weighting looking at names like QCOM, CHKP, DELL, TXN, GLW, NOK, SMH, SFA, and SMH. While value names and industrial stocks still look good for more upside, many are seriously extended. What we are talking about is reallocation, not an either or choice. 

The charts show the strong outperformance of the Dow which is extended and in the midst of overhead supply. The NASD show a double bottom and moving averages above. 

February 28, 2002- I want to reiterate that this is a market for singles, not homers. Second, there is no technical sign that technology is ready to rally or to be the next mover in this market. Look for basing patterns, double bottoms, broken downtrend lines, or signs of accumulation. Many cyclicals are extended and in need of a pullback to trendlines or 50 day moving averages. Regional banks and selected financials are showing some strength, particularly Key Corp. This stocks yields around 4%, is under accumulation. However, I think the target is probably 27.50. This is a good single in this market. Mayber, you pick up dividendI would still avoid the money center banks and brokerages that are highly leveraged to the bad news. Some of the defense names like GR and EASI still look to be in sustainable uptrends, but look to lighten on spikes like yesterday's action in TXT and UTX. This is a market very tuned to Wave Investing. 

While the NASD just bounced into the moving averages and its downtrend, the DJIA is probably a little overbought and into some overhead supply. 

February 27, 2002- We are getting great action from old economy stocks, energy, multi-company, industrial products, homebuilders, defense, retailing, etc. However, many of these names are seriously extended and traders should take profits and re-accumulate on pullbacks. Some other names, like GR, TGT, and UTX are more gently and upwardly sloped allowing the moving averages to catch up in a sustainable fashion. Dr. Doom testifies today, so the market will listen to every contradictory word. Catching the next wave of movers is not easy. In fact, they have not really revealed themselves. Look for high volumes breaks above the 10 and 50 day moving averages. Meanwhile, the Dow approaches the top of its trading range, and the Nazz just performs an oversold bounce into a downtrend. 

February 26, 2002- Another strong move, however, technology and telecommunications were just oversold rallies into the mid-range of downtrends, probably borne more of short covering than conviction. Likewise, money center banks and brokerages (particularly big guys with exposures to you know who and their brethren) are showing rallies into the mid-range of their downward channels. You do not suffer technical damage of this magnitude without, at an absolute minimum, a double bottom, or some basing process. Wait for those signs before you buy tech, telecom, or big money centers and brokerages. In the meantime, those boring cyclicals are showing serious price strength and underlying accumulation. 

The Dow is looking a lot better than the Nazz which is showing the rally into a downtrend phenomena. I'd rather be bored than sucked into a downtrend. 

February 25, 2002- A couple of observations to start. First, this is a market where hitting singles is more than enough and going for homers, will lead to strikeouts. Second, this is the market from Missouri, and it has not and will not take huge leaps of faith and jettison traditional valuation metrics. Third, it is OK to be boring. Stocks that would have put investors to sleep are working extremely well. Like what? Transportation, defense, energy, with names like Textron, Smith International, Amerada Hess, Proctor and Gamble, Boeing, etc. Fourth, technology is cyclical, over populated, and still richly priced. Those addicted to high beta stocks need to reconsider what this stuff is worth. Fifth, we now have another bifurcated market and now it is value and traditional industrials that are holding the power. Sixth, the market pays for companies that honestly produce operating profits, not goosed returns from leverage, off balance sheet exposures, accounting gimmicks, etc. 

It is possible to create a portfolio of fairly valued companies selling around 12 to 15x forward earnings. Alternatively, you can pay absurd prices for technically broken stocks that do not have earnings and are in retrograde. Now, look at the difference between the tech dominated NASD and the more traditional Dow Industrials. 

February 22, 2002- We gave up all the gains from the prior day, revealing the downtrends and retests of old lows continues in place. Further we undercut the previous day's lows. However, transportations, energy, and healthcare was strong, suggesting that understandable businesses, with trustworthy accounting, with a reliable earnings borne or either steady demand or cyclical recovery are more in vogue. Technology and telecommunications are in a waterfall decline and there is little sense in catching a falling knife. 

What are these charts saying? Despite some signs of an improving economy, there is little trust of the strength of that recovery or that it will dramatically impact profits sufficient to justify generally fairly valued securities. In telecom, it is obvious these companies do not have a profit model. In technology, it is obvious they are cyclicals in crowded fields with no pricing power and a need to reinvent themselves perpetually. The companies have very soft and spongy assets with capitalized development costs that need to be addressed. Technology will not lead the way out of this mess. Basic businesses might. 

February 21, 2002- Retailing and biotec with a strong closing from cyclicals and technology powered an oversold bounce with closes near the day's highs. 

Technically, this was an oversold bounce around the bottom of the Dow trading range. Note the moving averages are straight lining showing a lack of resolution. The Dow looks better than the NASD. Clearly, technology is moving to a new awareness that it is cyclical, hurt by overcapacity and no pricing power, beset by some accounting issues, and floundering over real valuation concerns. The NASD is establishing a new downtrend and we could be setting up a reversal of the bifurcated market between 1998 and 2000, when the techs stayed in a bull market while the rest of the market experienced a bear market. The A/D line was negative for some period, even as the averages hit new highs. This action masked the rot. Now, we are starting to see many cyclical and defensive areas hit new highs while technology looks heading for retests of '01 lows. 

February 19, 2002- Long weekends give investors time to reflect. Unfortunately, those reflections do not yield tremendous shorter term optimism. First, the market rally was thrwarted at overhead, and investors showed little willingness to hold positions over the weekend. More accounting revelations are adding to the sense that profits are light and not always accurately portrayed. While inventory levels are low, rebuilding would only give rise to a temporary rise and economic recovery would appear to be shallow. There is no pricing power across most industries, possibly excepting healthcare, and only a vigorous recovery could take up excess capacity. The traditional levers, monetary and fiscal policy are largely spent.  

At this point, only healthcare, defense, some retailers, and energy look OK. There is a lack of leadership in financials and technology which are traditional leadership groups in bull markets. There is a serious loss of credibility and Corporate America and the accounting profession must redress the problem. One could blame too much equity based compensation (and a need to keep reported earnings going up even if real earnings are going down), too much emphasis or favorable tax treatment of capital gains vs. dividends, too little morality, etc. These widespread defaults of public trust will exact a real cost in terms of the cost of capital and the availability of capital. 

These charts, once again, are rolling over and appear headed for a retest of recent lows. The problem is there appears to be little sign we have enough to hold. A failure to hold could suggest a serious and debilitating downtrend.

February 14, 2002- Pretty strong day without strong volume. We appear to be making an attempt at getting to and possibly over the moving averages and then to the top of the trading range. Cyclicals, energy, chip and and chip equipment seem to be leading the charge. Meanwhile, Enron, Quest, TYC, EDS, Take-Two, JP Morgan and others provide a worrisome and threatening backdrop. However, a market needs a wall of worry to climb. When everyone cannot think of any negatives, you are in for serious trouble. When everyone knows the reasons the market will not go up and is a shortseller's dream, it will rise. When your buddies in the health club brag about being "net short", go long. 

ebruary 13, 2002- A pullback day on declining volume, but with reasonable breadth. More Enron, more terrorist threats, and more murkiness in the unfolding telecom picture, courtesy of Nortel. Biotech, tobacco, and healthcare were strong, while techs, energy and financials were weak. Energy has strong up and strong down days, but the trend is increasingly positive. This area is cheap and unloved and my prove a sound way to play the recovery. 

At this point, a bank like JP Morgan Chase has tremendous negative leverage to bad economic events, and bad management. While earnings explode in the upside economic swing and they benefited mightily from the Internet when it was in its glory, the reverse is also true. An Italian bank is suing JPM for enticing them into an Enron syndication, when they knew it was in trouble. They also have tremendous off balance sheet exposures to less than pristine credits. Citigroup is in the same category, although it has far better business balance.

Did we just have a countertrend retracement in a downtrend or just a brief one-day break from a rally with legs. It is typical do have a two day rally with an inside day followed by a resumption of the downtrend. Alternatively, we could be putting in the second bottom of a major double bottom. 

Of course, most investors are not buying or selling the market or indexes. They are choosing individual stocks based on fundamental or technical attractiveness. Here, I would take a look at GR, ABC, AHC, SII, UTX, and, for those into more speculative situations, PVN. 

February 12, 2002- Today may give us some idea of whether we have an oversold bounce (which could end today), a move to the top of the trading range (say 10,200 in the DJIA), or the start of a broader move which will take out the top of the recent trading range. I do not believe the latter possibility is realistic. The economic recovery looks to be shallow, overcapacity is rampant, pricing power is no in evidence, and valuations are hardly bargain based. On the other hand, the old "what else are you going to do with your money" will be trotted out. Of course, didn't we hear that when the NASD was around 5,000. I would like to reiterate a point I have been making for years. Technology is another cyclical category, whose growth dynamic is broken. While you might make a case for tech as a growth cyclical, the current multiples are outlandish. 

If you just look at the numbers, and divorce yourself from the underlying business, you would not see multiples of 4.5x Price to sales (there are no earnings) for EMC, 2.5x for Sun Micro (also no earnings), 37x P/E for Oracle with flat to down sales, etc. Each of these businesses face serious competition and a very uncertain IT spending environment. To buy these stocks as bargains is to ignore the facts and history. Look at the sad trading history of prior growth stocks when the valuations caught up with the reality of their true business. Worldcom, North Telecom, Lucent, Waste Management, Motorola, Xerox, etc. The list of fallen angels is longer than the list of companies who are truly providing the growth results to live up to their valuations. 

I have four pieces of advice. Beware of tech. Beware of telecom. Beware of biotec. Do your homework. If you can't find attractive PEG ratios with realistic accounting, just stay in cash. 

The charts continue to show the emerging trading range. We sit below a ton of overhead and the moving averages. We are going to need to see some real breadth and volume to get through this. Additionally, we have the whole issue of whether 

February 11, 2002- Buy recommendations on Sun Micro, Merrill Lynch, and Providian, a distressed credit issuer to sub-prime borrowers, ignited an oversold rally with a close near the top of the day's wide range, normally a good sign, particularly on a Friday. Breadth was good, but not great, and we must see some real follow-through in the early week to suggest this could be more than just an oversold countertrend rally. The good news is the low level of rates, an aggressive Fed, substantial inventory liquidation, liquidity building, and some signs are bottoming in many sectors. The bad news is valuations are pretty rich, the magnitude of the recovery is very uncertain, and huge overcapacity exists in most industries. Adding to this is the accounting which is not trusted. Guilt by association is clearly putting a risk premium on equities. On this last point, it is good that people are looking at balance sheets and cash flow statements, and are scouring 10-k's looking for trouble. Companies are on notice their stocks will melt down if they don't come clean. 

It would appear we are somewhere between a trading range and a retest of the April lows. Rallies will have to have tremendous breadth thrust to rally through overhead, and downward pointing moving averages.

February 8, 2002- Late selling took the markets into negative territory, as we test some critical areas of support. The endless drone of the Enron hearings make for a very sobering background for a market lusting for something positive. Cisco broke support at 18, setting up a negative tone for other networkers. Oil Service was another weak player. 

Clearly, from the charts below you will see a market beset by concerns about valuations, technical issues, economic recovery, and trust in the numbers. 

NASD broke the 150 day moving average and support at 1800. Therefore, we appear headed for the next area of support around 1700. Past that we are heading for a retest of the old lows of 2001, a grim prospect indeed.

9200 appears a reasonable prspect.

February 7, 2002- We have gone from ebullience in early January to rampant pessimism. The collapse of the dot.com bubble, telecom, and many areas of technology serving dot.com and telecom is now being followed up by a terrible earnings season, replete with fraud and questionable accounting designed to hide reality. Now, we are getting oversold, and this guilt by association is creating some value. The real question is where. Technically, we are noticing that stocks are opening stronger and closing weaker, the so-called dumb money/ smart money observation is another sobering signal. Another random musing. After Cisco's John Chambers commented his gross margins were up 4%, he failed to answer a direct question about how much zero-cost inventory he sold in the last quarter. That, simply put, is where the performance came from. Writing off three years of profits and writing inventory to zero to set up future quarters is not how to inspire new investors. 

Let's deal with some of the facts. The economy will recover. The real question is the magnitude of the upturn and whether excess capacity will be taken up and pricing power return to business. Right now, we are looking at a shallow recovery (borne of inventory building, not necessarily final demand), and little pricing power. While technology led the charge in the 90's, it is now viewed as a cyclical risky business, which may not make real profits at all. Why? When research and development is deducted, you do not have profits. However, that R&D is necessary to keep old products salable. In essence, this R&D is more maintenance and should be more properly expensed. If these were trucking companies they would be capped at valuations around 10 to 12x peak earnings. 

The counter arguments are not based on fundamentals. Money flows and extremely unattractive rates on fixed income make it inevitable that money will be directed at equities. 

February 4, 2002- More Enronitis for multi-companies, financial services firms, independent energy traders, supporters of venture capital, companies with special purpose subsidiaries, companies that are too complex, companies that employ Arthur Andersen, companies that present their results on a pro-forma basis, companies that employ aggressive accounting, acquisitive companies, companies that have too many subsidiaries, any company that has created income from overfunded pension accounts in boom times, or any other entity attempting to make a silk purse from a sow's ear. Now, is there anyone left. Judging from yesterday's trading, no entities escape the newly anointed vigilantes. You want names. Throw a dart at the quote page. We are entering a time where lower levels of leverage, conservative accounting, honest management, ease of understanding, organic growth and transparent growth, etc. are going to be accorded important premiums. 

The list of "uglies" is added to the list of companies without pricing power, and with such excess capacity that no recovery will be sufficient to change the economic model for the positive. Most of the Internet, long distance, chip production, many areas of software, sub-prime lending, retailing, etc. fit this group. We are definitely experiencing a crisis of confidence. 

Let's face it, we now know more about accounting and Afghanistan than we ever wanted to know. There are some quick ways to resolve this. Every accounting problem, in the past, has increased the cost of capital for America. The combination of the dot.com bubble, the NASD collapse, and the death of venture capital will exact a toll in terms of productivity and the cost of capital going forward. We need more conservative accounting. We need accounting firms divorced from consulting firms. We need auditor rotation. We need far more specific accounting guidelines. When a corporate entity can eliminate debt which it is responsible for, and create income from expenses, the practice needs to be eliminated. 

Anyway, the markets have breached support and are clearly in newly minted downtrends. The damage wrought by Lay and his CFO are incalculable. However, in the end, this fiasco will result in more reliable reporting of results and obligations and give investors greater trust in the numbers. Tainted firms and managers will go to the scrap heap. This problem rivals the fallout from Michael Milken's high yield market blowup. 

The NASD has support at 1770, the SPX at 1050, and the Dow Industrials at as low as 9400.

February 3, 2001- The lack of reversal day follow-up suggest technical overhead supply, valuation issues, serious accounting credibility concerns, and the magnitude of any recovery all dog the market at this point. None of these issues are trivial. They will not go away overnight. The weekend disclosures about TYC and ENE raise more issues. Cisco, a leading practitioner of growth by acquisition, must also be questioned, since asset writedowns at acquisition, pave the way for future earnings. Unfortunately, you need more acquisition to keep the empty growth alive. Let's face, CSCO's huge writedown last year, also will be partially taken into income overtime. There is simply no way, the average investor or analyst can unearth all these possibilities for manufacturing growth and income. This leaves the investor will an underlying premise of the honesty of management, which is proving increasingly unreliable. 

However tragic these cases to individual employees and shareholders who could not afford the losses, there is the larger macro arising from the higher cost of capital due to a growing lack of trust and sense there is little transparency. WE all pay for crime, and capital markets are no different. 

These charts show a market struggling to get traction.  

February 1, 2001- The issue of whether Wednesday was a key reversal day is important relative to the possible strength and follow-through. It met the technical definition of a trading day opening and achieving a lower low than the previous day, but finishing above the prior close. Given the size of the range and the close with buying coming in, it was worthy of note. Additionally, the ARMs reached a level seldom seen of over 3x. This can allow an investor to see the extent of possible exhaustion of selling and maximum bearishness, at least on a short term basis. It is computed by dividing the ratio of advances divided by declines by advancing volume divided by declining volume. Market health would show a ratio under 1x while capitulation selling could take the number over 1.25x. It is seldom that the ARMs Index will get to 3x. 5 of the last 6 times since 1994 represented important trading lows for the Dow and S&P. Thursday, for the most part, gave us the follow through to confirm the capitulation and reversal. Friday will be a key day since there is a tendency for traders to square their books before the weekend. 

Financial, chips, cyclicals, defense, and energy were strong. There was tremendous strength in stocks like Textron, Smith International, GM, United Technologies, etc. While this may be month-end window dressing, it occurred with good volume and breadth. If we can show strength into the weekend, then yesterday's reversal may be more than just TYC's CEO and CFO buying company stock. There is a growing sense of economy recovery borne of Greenspan's remarks and the 4Q GDP which showed unexpected growth in final demand of 2.5%. We need some more upside action with strong volume and breadth to suggest we can vault the moving averages and move to the top of this recent three month trading range. Breaking the top is going to require some strong economic data and sense pricing power is returning to business. It is not time for complacency. 

January 31, 2001- Was this a key reversal off an oversold condition? TYC CEO and CFO indicate they will make significant open market purchases and the stock reverses panic sell-off, traversing a trading range of approximately 36% of yesterday's closing price. Semi's and energy (sparked by inventory drawdowns) provided leadership with some added push from retailers and finance. The early trading was very bad. 

Despite a possible key reversal, the broad SPX shows a downtrending index looking to retest the old lows. However, volume was very strong suggesting we will at least attempt to give investors something to cheer. 

January 30, 2001- GDP was positive, with final demand up 2.5%, suggesting this could go down as an extremely mild recession with the low point in the rear view mirror. While one could quibble that this growth was borne of tremendous auto deals and major markdowns at retail, one could also see inventory cut to the bone, suggesting rebuilding depleted shelves could move the economy even if final demand flags.

The market has finally had enough, and it is a matter of "ready, fire, we'll aim later". Enron falls the stratosphere and goes bankrupt. Then we hear of off-balance sheet exposures and even seasoned pros have a hard time getting inside 10-k's and q's to accurately assess the risks. PNC restates its earnings and JPM has exposure to every bankruptcy including K Mart, Enron, and Global Crossing, we wonder about their reserves. If a company is audited by Arthur Andersen, investors sell, assuming the earnings are not presented in accordance with GAAP, but rather are a fiction an autocratic CEO demands it auditors to bless (see Sunbeam). Investors realize that they are dependent on the independence of auditors, the honesty of management, and the transparency of the numbers. If the numbers are fiction, it obviously calls into question any fundamental approach to valuation.  

Peoplesoft, in what I believe the most egregious act of legerdemain, converts its R&D expenses to income, by contracting its programming staff to a partnership, who pays for those professionals on a cost plus basis. If the software is commercialized, the partnership gets royalties on future sales. In essence, costs once properly expensed, are converted to income. At one time, such development costs could be capitalized. That was viewed as liberal. Only Kafka could understand this accounting. 

Investors are now trying to identify simple patterns and associations to prevent a disaster in their portfolios. If a company has too many subsidiaries..... sell it. If a company is auditted by Arthur Andersen..... sell it. If a company is an Independent Power Provider....... sell it. If a company is involved with any financial assets and the securitization thereof..... sell it. Yesterday, practically every public security was caught in the cross hairs of the panic blunderbuss. Is this an opportunity to buy, or a precursor to a retest of the lows.  

The markets broke below all the moving averages and, for technicians, the rally since the 9/21 lows is looking more like a massive bear trap than the reconstitution of the bull market. While the technical picture looks nasty, investors looking to short should consider the following items. The Fed, fiscal policy, the fact we are oversold, and put/call ratios suggesting sentiment has turned negative enough to provoke a rally. Yesterday, was panic "hit the bid" selling. It was institutional selling with managers not wanting to get caught with the next bankruptcy. Eventually, investors will sift through the damage done by "guilt by association" and buy. In the aftermath of 9/11, the Cruise Lines and hotels were crushed. Many have rallied 100% in three months. If you can keep your head, when all around are losing theirs........

 January 29, 2001- Initial positive action based on tech upgrades and upward revisions, Auto upgrades, and the restructuring of Toys R' US pushed the market higher until it succumbed to selling. Late in the day, chips, networkers, and hardware rallied to allow the averages to close on a positive note. We are still oversold and probably can rally some more. The State of the Union address normally creates some positive trading action. Meanwhile, it is clear the boo-birds are out on TYC and are relentless in their view that this is a house of cards. 

January 28, 2001- The major averages were mixed, with oil, gold, semidoncductors, and transports showing strength and retail, biotech and tech taking retreating. There is a lot of churning and confusion evident in the trading. As usual, underlying the technicals is a fundamental explanation. As usual the economy, its direction and magnitude are the X factors awaiting resolution. Without more definitive signs of recovery, this market may continue this churning action and remain range bound. Finding the true Rembrandt in a store of "paint by the numbers" will be the source of outperformance. 

One thing is certain. With this level of liquidity and low capital costs, the economy has not failed to recover. The real issue is the extent of the recovery and whether that strength is sufficient to take up excess capacity and accord some pricing power to the producers. 

Can you see the emerging trading range? Right now, the approximate borders of this tight range appears to be 1114 to 1172 on the SPX, 11850 to 2070 on the NASD, and 9559 to 10,250. These ranges may provide some trading opportunities but this churning within sectors shows a decided lack of conviction. 

anuary 25, 2001- While earnings generally are meeting "talked down" estimates, the commentaries are very muted with respect to any recovery. While companies may be continuing the idea of low-balling exxpectations, the cautious talk is not supportive of the higher tech p/e's, particularly given the basic cyclicality of tech and the reduced growth expectations going forward. Stated bluntly, these stocks do not have attractive PEG ratios. In fact they are extremely high. Except for Nokia, wireless continues to flatten and networking battles tremendous overcapacity.  

Greenspan's remarks initially buoyed the markets, which proceeded to lose momentum and close fairly weak. You got the feeling his remarks were "politically correct", not heartfelt. He edited out the remarks about the economy facing "significant risks". It would appear there is a high risk we do not have enough fundamental value to sustain this oversold bounce. There may be a continuing trend to more defensive areas, throwing in some inexpensive stocks like regional banks to the mix. Energy may get some play as the rumors of action against Iraq become more audible. 

These two SPX illustrate the problem with the day and the problem with the rally back to overhead and the moving averages.

The NASD is still above its moving averages but the forward looking statements do not justify PEG ratios in the stratosphere. 

January 24, 2001- Oversold rally boosted by tech and biotec, with a drag effect on the Dow caused by IBM, KO, and AXP. Meanwhile, investors are puking up TYC like a bad clam. While it would appear logical that shareholder value is the obvious objective, and the sum of the parts is greater than the whole, this skeptical market is assuming that this "blockbuster" news is just covering up the slowing in the company's businesses. Further, there is the implication that this move is covering up some dicey accounting. I can think of no better way to expose suspect accounting than to break the businesses into pieces and issue very detailed information via prospectus and audit. With Enron as backdrop, does anyone seriously think auditors are going to look the other way? Even if the growth trails off to 8%, this is still a cheap stock at 17x earnings. TYC now sits exactly where it was before the announcement, after a dizzy rally and fall of 32%.

Breadth was good. This market has a schizophrenic aspect, but is now very oversold, with significant cash ready for deployment. Greenspan speaks today and since it is rare for him to do anything more than his usual "Grim Reaper" act, watch out around 9:55AM when the text of lugubrious monologue are distributed. Let's look first at the SPX which is more broadly represented than the NASD and .DJI.

There is always a fundamental reason why technical patterns emerge, even though those reasons are based on supposition. My presumption for this technical failure to break above the moving averages and downtrend line is that the market had gotten overbought, overvalued and bereft of news showing economic recovery and a taking up of excess capacity. If Greenspan and the data is good enough, there is clearly enough cash to allow these impediments to be transcended.

The NASD is technically healthier, but the unfolding news must support the improvement. 

January 23, 2001- We are now really oversold and the markets are responsive to earnings announcements and commentaries. EMLX, MOT, XOM and CAT performed either at or above the estimates and futures have shown strength in the early going. However, yesterday the market swooned after early positive trading. Clearly, the market is wondering whether the market is ahead of the recovery, which may be more shallow than expected with lower earnings growth than is baked in the cake. This valuation issue is particularly germane to technology where valuations are probably more aggressive than the overall market. Specifically, the overall market ex technology has low valuations relative to earnings yields. 

The final thought is that we may be entering a broad trading range until we can establish the magnitude and timing of the recovery and the pricing power that Corporate America will possess as demand increases and supply tightens.   

Technically, the NASD has done a 1/3 retracement of the down move and appears to be approaching the critical 150 and 200 day moving averages. A breakdown here would imply a depressing trip back to the lows. Something has got to give.

The Dow is a hard chart to like, suggesting an impatience with the market and the economic backdrop. It is clear that the Dow had a huge move into overhead and failed. Clearly, the notion of support, once broken, becoming resistance is well illustrated in this chart. 

January 21, 2001- Mushy earnings and comments from SUNW, IBM, and MSFT upset the market which closed down for the day. Only oil service, an underperforming area, had a good day. Biotec is experiencing some rough sledding and IMCL is clearly illustrative of the problem with sector, just as Enron is underpinning investor concerns about the independence of independent auditors and the transparency of the numbers. Amidst these negatives, consumer confidence continues to improve and Dell indicated they were going to beat estimates. 

While the earnings period is nasty, these are lagging indicators and the forward comments are filled with a certain amount of low-balling, particularly in the case of the three above, who understand Wall Street fetish with beating the numbers and "earnings surprises", even the forecasted are guided very low. Meanwhile the technical picture is getting blurred. We are short term oversold, but we are now down for the year, and most indexes are lower than their 200 day moving averages. 

While the Fed is favorable, and we are technically oversold, we do not have cheap stocks, and the tape is at some critical levels. One needs to have everything going positive on the technical and fundamental front. 

January 17, 2001- There was little comfort for bulls to be derived from yesterday's trading. While company's are generally meeting their "low balled" revised estimates, their comments about the future suggest little if any sign of improvement. The market is moving in a subtle way to defensive stocks like healthcare as it lowers exposure to economically sensitive areas. Has the market discounted an economic recovery that is so shallow that most businesses will have no pricing power and ability to expand margins? Perhaps. Has the market failed to see that despite recovery, there is so much over-capacity in most industries that businesses will still have to "give" the product away. Or is the foregoing debate just an excuse to pull prices back to a more attractive level? The final possibility is that we are going into a less favorable period for liquidity that will result in a sideways trading pattern until the economy path is more certain. 

The Dow, and its economically sensitive and technology composition, has broken below all the moving averages. The NASD still hangs above the moving averages, but we approach a moment of truth. Again this could resolve with a period trading with little for bulls or bears to like. 

January 15, 2001- Healthcare and utilities were on the upside, with everything else lower as the markets closed near the lows for the day. Despite some encouraging news from selected brokers on Intel, Micron, and Flextronics, technology was lower. Merrill Lynch cut its equity allocation by 10% to 50% and raised its bond allocation to 30%. The market is clearly concerned about valuations and recovery. What began hopefully is deteriorating quickly. Some key support levels were broken. 

1950 and 9800 look like the next support for the NASD and Dow, respectively. The Dow has retreated below the 200 day moving average. 1853 on the NASD is the location of the 150 day moving average. 

The bearish argument is we have monstrous P/E's that could not be justified looking ahead at '03 earnings. We have huge overcapacity in most businesses and no pricing power. The bullish argument is that with the current low levels of interest and high liquidity, we will ignite a surprising economy recovery where earnings growth and low rates justify high P/E's. 

January 14, 2001- Greenspan kicked off "doomsday" weekend, followed by Marc Faber in Barron's suggesting the US consumer was "brain-damaged", and needed to repair his credit condition before any recovery could start. Others opined that the real estate boom and refi benefits were spent, and no other sector was ready to carry the baton. All this implied that the economy's goose was cooked, the consumer was in need of re-tracement, earnings would be poor, warnings would predominate, and valuations were absurd. While every market move has an underlying theory, the ability of the economy to recover is the clear fulcrum for this market.

We are now dangerously close to breaking below some support levels. However, we could also hold and resume our upward path. The technicals, therefore, are in critical territory, and like 3 and 2 in baseball, "something has got to give". Greenspan comments were cautionary, but not depressing. Perhaps the weekend sent the traders home with limited exposure. The PPI showed there are no inflationary pressures. In fact, the lack of pricing power in wholesale and retail arenas is what has many investors concerned that earnings will not have a V bottom. 

The yellow line shows a key support level. Below that are the major moving averages. It is important for January to finish strong, because it has historically been a trend setting month. Biotec was strong, but mostly everything else was under selling pressure.

 January 11, 2001- Breadth was completely neutral, as the digestive phase appears to be near complete. We have shaken out some of the ebullience, and given investors a chance to contemplate the dark side of possibilities. Pundits have repeated the mantras that we are "ahead of ourselves", that we are overvalued, or that the recovery will be too shallow to generate any pricing power for business. While I believe we will have another upside move, it will be limited and probably give rise to a bigger pullback which will then set the stage for the economic recovery and higher equity prices. 

Apparel, biotechs, and banks led the winners, while oil drillers and autos led the decliners.

January 10, 2001- Morning gains melted in the face of speculation of a downgrade of Japanese banks; the Fed suggesting that the markets are pricing in more of a recovery than the economy is showing; and a rumor that the U.S. has begun bombing Iraq. We are still in a digestive phase, but buyer clearly would like better prices and those holding profits are easily spooked. Software had a strong day, and brokers were positive, even after Merrill announced large layoffs. Typically, these layoffs signal the economic bottom.  

The Fed's comments are fatuous. What recovery ever seemed like a Polaris missile at the bottom? The Fed intruding into equity markets is not within their charter. Are they chartered to define the prices of equities and the pace of a rally? Is this "irrational exuberance- Part II". Meanwhile, technology dominates the best performing stocks over the last week. This performance will have to deal with the reality of earnings announcements and comments.

January 9, 2001- More orderly digestion of prior gains, as extended stocks pullback to support. The market had some momentum near the close, which is a positive sign the market is just taking a break. This is a healthy and normal process, that should lead to more upside action. However, after the January effect has worked its full effects, we must deal with the recovery and its magnitude, to determine the full potential of what appears to be a newly minted bull market. 

January 8, 2001- Over the weekend, investors seem to unite around the notion that we have come too far too fast, the economic recovery is tenuous, and many stocks sit right at overhead resistance. Morgan Stanley economist Stephen Roach downplayed signs of a recovery in the fourth quarter suggesting they were buoyed by one-time and unsustainable factors. Those factors include zero financing on autos, reduction in energy prices, significant mortgage refinancings, tax rebates, and huge holiday markdowns. This cold water, coincidence of not, seemed to have some role in the market's pullback.  

Looking at the 3 year NAZZ, it is interesting to note joining of the moving averages preceding the major decline. In similar vein, we see a similar joining of the moving averages recently, as the average started trading above the moving averages which are flattening. While we could see some backing and filling, and some nasty announcements, we believe the new trend is up. AOL's attempt to "talk down" growth estimates and downplay nearterm results caused a pop in the stock. This suggests there still is a conglomeration of bad news in many stocks. 

January 7, 2001- Financials and technology, with assists from cyclicals are leading the charge. Financials and technology often lead robust rallies, and this is a bullish sign. We appear to be reconstituting the bull market. This is based on an accomodative Fed, and a new uptrend in the technicals, together with signs the economy is showing some signs of confidence and consumer spending, which ultimately will translate into investment spending. 

A few notes of caution are warranted. At the present pace, we are getting overbought and over-optimistic too fast and we may need to regroup at lower levels after the January effects have been spend. It is interesting to note the Dow has done nothing good for multiple years. Only skilled traders made money in this environment. 

10,400 for the Dow and 2,200 for the NASD are reasonable targets for the January effect, before the gravity of being overbought and overly optimistic meet cautionary earnings reports, which are coming in a week or so. In the meantime, under invested money managers who feel they have missed the train, rush to get involved. 

January 4, 2001- Technology had a huge day, as the Christmas rally continued. This is a good sign for the month and perhaps the year.  Technology demonstrated the best relative strength and showed gains reminiscent of the good old days of "what, me worry". We appear to be vaulting the most difficult overhead resistance. 

January 3, 2001- The market reversed early steep losses on mild volume and neutral breadth. Technology carried the ball, while investors took profits in energy, and finance that might have been awaiting a new tax period. There were rumblings of tighter DRAM prices which fired the SOX index and its components, but this may be just a straw in the wind. This was a strong reversal and should augur more buying in early January. Other than sentiment being too positive and the extent of the economic recovery and tech bounce, things look OK for a continuation in January. I believe there may be some weakness after the January effect as economic and tech data may be insufficient to buoy a market anxious for tangible evidence. 

Technically, this market needs to use seasonal strength to clear the obvious hurdles. NASD would appear to have a shot at 2268 first and 2400 later, while the DJI could get to 10,400 as the economy reacts to lower rates and higher liquidity. 

January 2, 2002- How do you approach the new year. One approach is the Dogs of the Dow, which would include Eastman Kodak, JP Morgan, SBC Comm, Exxon, and International Paper. Economic Timing disciples would probably focus on consumer cyclicals, financials, and chips to take advantage of earning acceleration as the economy returns to growth in '02. GARP investors will have to look at smaller and mid-cap areas on cyclicals, financials and energy. Thematic investors would concentrate on life sciences, security, and selected technology. Value investors would look at underperformers in energy, financials, and some retailing, with technology a possibility if one believes sufficiently that the world in not beset with too much inventory and capacity. 

Technically, the market must thrust itself above resistance with strong breadth to provide convincing evidence we have, indeed, reconstituted the bull market. The market has had two consecutive declines, a dubious feat not seen since 74-75, which was followed by some impressive gains. 

A word about technology, as a generality, is warranted. We have just experienced a gigantic rally in the NASD and technology. From its lows, the NASD is up almost 50%. The NASD has pierced all the moving averages to the upside. However, the warnings persist, and these stocks, now exposed as cyclicals, are not cheap. For instance, Dell sells at a P/E of 62x trailing eps. Comparable stats are 33x for Oracle (whose revs are virtually flat over three years), 46x for AMAT, 59x for MSFT, 75x for INTC, etc. For many areas, like fiber optics, the companies are buried in large losses. These stocks are the antithesis of PEG stocks. While it is possible to make the "growth cyclical" argument, it is also possible that these stocks are going to enter a trading range for years as the earnings attempt to catch up with prices. 

December 31, 2001- We are seeing a typical setup for the season, as we have been suggesting. Strong money flows, anticipation of the January effect, the end of tax selling, and a lack of underwritings all work to create positive action. If we can break over resistance with strong breadth thrust, we could expect some important positive action in '02.

Market timers will point to Fed easing, money supply growth, elements of technical strength, and valuation, assuming we get a brisk recovery. Nay-sayers will point to overly bullish sentiment (put/call ratios, etc.), the presence of overhead resistance, and the high valuations because this anticipated recovery is not a sure thing, and if it occurs, it may be tepid. 

I believe the positive seasonal factors will carry the day, but selection (stock picking) is key to early results. Small and mid-cap stocks are dominating the lists of stocks under accumulation, particularly names that have seriously under-performed in '01. Energy, credit cards, and wireless towers are examples of this phenomena. 

December 28, 2001- Once again, positive seasonal factors are carrying the market to impressive gains. We will have to battle through warnings which will continue, but in their midst, we might find some indications of bottoming or reacceleration. Again, if we can get through resistance on high volume at 2000 on NASD, 10,100 on the Dow Industrials and 1170 on the SPX, this could spur more buying from technically inspired traders who are hesitant to commit in the face of this resistance. However, resistance, when broken, becomes support, so it becomes more of a positive. 

There was strength in a broad range of stocks yesterday including defensive, cyclical, and technology. Financial issues were subdued. The action also appears to be focused on the mid and smaller cap areas of the market. 

December 27, 2001- We are getting more of the holiday effect, anticipation of the January effect, new money flows from bonuses, employee 401(k) matches and little in the way of underwriting uses for funds. This activity may be strong enough to induce a break above overhead resistance around 2000 on the NASD, 10,100 on the Dow, and around 1170 on the SPX. While this could create some good cheer, we still have to deal with valuations and the extent of the recovery. My intent is not to diminish investor ardor, it is rather to indicate that we are not out of the woods and their are good bull and bear debate issues. 

Techology, retailing, and energy stood out in yesterday's trading with energy breaking above important resistance, and, simultaneously, representing one of the best value areas. 

December 26, 2001- It is customary for market to rally around Christmas and continue toward the mid to latter part of January. Money flows, the end of tax selling, and bargain hunting come into play along with an accommodative Fed, low rates, and the prospects of an economic recovery.

The bearish argument is that we are clearly losing price momentum, have strong overhead resistance, and have already discounted a recovery whose appearance is not assured. In this uncertain environment it is important to stay diversified, do your home work, and avoid highly conjectural situations. In this regard, the damage of Enron is widespread in that in calls into question the reliability of accounting across all businesses. For fundamental analysts, it is critical to trust the numbers. That is more difficult after Enron. That is why it is critical to also study the charts. 

These charts are not "to die for". While they may resolve to the upside, we have troubling incipient descending pennants, double tops, trading under the moving averages (Dow and SPX), and overhead. From a fundamental perspective, is there a strong enough recovery in our future to relieve substantial overcapacity, and return pricing power to the suppliers without triggering a troubling round of inflation. While I am not overly troubled by the high index multiples given what is arguably "trough earnings", we are not sure this is the trough and the market is still not cheap.  

 December 21, 2001- The book to bill ratio was .73 vs a forecast of .78. This will continue the tech erosion, which now is showing serious loss of momentum. Further, sentiment is very bullish as evidenced by surveys and options data. Again, if this was February, prospects would favor the bears. However, it is now just the strong seasonal factors that provide much hope for a happy holiday. 

Things are fraying around the edges. Juniper announced big shortfalls. JP Morgan/ Chase has huge exposure to Enron, and counter-party Letters of Credit are not being honored. Argentina spirals out of control and the President and the Minster of Finance resign. These incidents have a way of unraveling and proving not to be isolated. The argument that this market has gotten ahead of itself held power today as the market retreated broadly. The NASD has given up 4.3% in two days. Jobless claims improved 

Technically, the indexes are dropping below the 200 day moving averages and forming some double tops, a nasty sign. If this was February, I would say let extreme caution be your guide. This is still a seasonally strong period that may still prove rewarding. But be of good cheer, because Krispy Kreme and California Pizza had good days. 

December 20, 2000- Micron and Triquent torpedoed the chip sector and the NASD, while financials and beverage (KO) carried the DJIA and SPX to positive performance. The brokers showed good price action, while C was strong on news it would begin the spin-off of Traveler's with a disctribution of a 20% interest in their insurance unit. Energy stocks, which have been experiencing a strong technical rebound from dreadful underperformance, were up on the disquieting news of interception of an Iranian oil tanker. 

The .DJI and the NASD are now over the 200 day moving average, while the SPX is knocking on the door. 

December 19, 2001- MOT and MU have sobered the markets which are off to a bad start in the futures markets. Alcoa chimed in with drastic earnings reductions. Global markets were almost universally negative. We are in the earnings warning period and this could provide stiff headwind for the markets, regardless o the sector. While markets do look forward, they can be retarded by lagging indicators, particularly if it is a daily drumbeat of nastiness. 

Look at it this way. Consumer non-durables are tough to buy because they are expensive and not a timely choice on the eve of economic recovery. Cyclical stocks have already rallied and priced in those positives. The same is true of technology. Interest rate sensitive stocks like utilities and REITs will be hurt by rising rates as economic activity and rising inflation impact this group. Where to go. I would stick to momentum (earnings and price) and value. Be sure of what you are buying and do not take a huge leap of faith about a turnaround. This could give you a barbell portfolio of value and momentum. Avoid concentration and use targets and stops. Trees do not grow to the sky. 

I am not sure that this normal seasonal strength will be the rising tide that lifts all boats. I remain concerned about overhead.

December 18, 2001- Nice rally after the weekend, showing the early indications of normal seasonal strength. Continuation of this positive price action will involve signs the economy is strengthening and rising volumes and breadth, showing that uncommitted cash is being deployed. There remains overhead resistance along the way that is not trivial. 

The bear case is that this market is still beset by huge overcapacity in tech and telcom and this driver is not going to be there for years. Other sectors are not terribly attractive fundamentally and few real PEG stocks exist (where the P/E is less than sustainable growth less than 1x). While economic recovery buffs have taken heart with the decline in bond prices, they reason that was an overbought reaction as speculators shorted bond and went long index futures. A look at longer term charts defines the major indexes bumping the top of the downtrend channel. 

While shorter term charts are more sanguine, the longer view shows issues. We have come a long way, are a bit overbought, and are staring at uncertain technology, telecom, and economic recoveries. This market must be approached with some caution and perspective. Speaking of caution, I would also admit you can find a chart time period to support virtually any theory. 

December 17, 2001- Late Friday the markets rallied to close near the high of the day, normally a positive technical sign. We are continuing this consolidation and earnings announcements and economic data will probably not provide huge comfort to bulls. However, markets look forward and it is this vision that will carry the market higher in this typically strong seasonal period. Each of the averages seems to have pulled back to some support and staged a mild reversal on Friday. 

Strength exists in mid-cap technology and electronic retailing. GARP stocks exist in financial areas, some manufacturing, energy, and automotive supply. However, this economy must rally briskly in '02, for GARP to be rewarding. Value plays exist also in financials areas. The steepening yield curve make a BAC attractive. For pure momentum, VRTS, EMLX, NVDA, Toll Bros (TOL), and retailers including BBBY, HD, and CC. However, some of these names are overbought and extended. 

December 14, 2001- Warnings from Quest and Ciena added fuel to the idea we have completely overbuilt the telecom sector and demand for products and their components, like semiconductors, will be weak. Retail sales were depressed and worse than forecast. Doomsdayers suggest this economic weakness will not respond to stimulus and we have overbuilt and overspent and it will take years of depressed economic activity to restore balance. Any market has negative features and positive features. When a market is in a pullback those negatives will seem all encompassing. Conversely, in a blow-off the negatives will not be murmured. 

So it is now. At this time of year,  it is difficult to be short or all in cash. The one caveat is that another terrorist act could damage recovering consumer confidence. The pullback to the moving averages is under way. Failure to hold on a closing basis could affirm the negative view. Until that happens this is just an overdue pullback. We all the major moving averages we have a come a long way and need to correct to add cash, pessimism, and technical support to the next push. We are getting to the time where this push is seasonally optimal.  

The SPX and Dow have stalled around the major moving averages. A pullback to the 1100 or so level would be reasonable. A close below that on rising volume would spell trouble.

A pullback to 9600 or so is in process. 

December 13, 2001- More warnings, this time Lucent weighing in. The market, through this digestive process is focusing on warnings, current economic weakness, terrorist threats, and valuations. This is normal on pullbacks. Soon, the market will again refocus on the future and the low level of interest rates. In this regard, the long end of the bond market clearly is pointing to economic recovery. 

While in the digestive phase the market will focus on lagging indicators, and some coincident indicators, real investors should look forward. In the United States, it would be virtually unprecedented for monetary stimulus not to eventually turn the economy. While some may point to Japan as an example of an economy and equity market that has not recovered in 13 years, I do believe the parallel is inexact. Japan's banking system was and is bankrupt. Accounting in all businesses is not transparent. The economy imitates it does not initiate. Technology is moving so fast that the Japanese cannot develop process businesses, when the world is a captive of innovation. The Japanese system of cross ownership is a decided negative, and induces economic sclerosis. 

We remain positive about the economic future. The stock market will rally again into 2002.  

December 12, 2001- The Fed rate cut of 1/4% was initially met with buying, but Merck's earnings warnings spooked the Dow, even though technology drove the NASD to a gain of 8. We are still in the digestive phase of our breakout, attempting to gather fuel in the form of fear, negativism, and cash. Any catalyst, either from the battlefield, or in the economy would help fire more upside. I think the very controlled sell-off is a positive. 

Let's face it, we have very low rates, a pump being primed fiscally and monetarily, and the prospects of a better economy ahead. The steepening yield curve and the performance of cyclical stocks suggest that these predictive indicators are pointing to a recovery. 

December 10, 2001- Some analysts are suggesting we had a high volume blow-off top last Wednesday, and that our overbought indexes need serious price pullbacks to get back in balance. Others suggest this is just a little pullback and that there is simply too much cash that must be deployed in the next month. I believe we will go back and test the breakout levels of 1930 in the NASD and 10,000 and then around 9,750. These corrections would be minor, work off the oversold conditions, hurt sentiment, and provide more worrisome commentary for the market to scale. 

The more positive scenario presupposes that there are no more cataclysmic terrorist acts and that the economy is not rooted in a completely intractable economic decline. I believe this economic contraction was a by-product of a reverse wealth effect, over-expansion in inventory and capital assets, and a scarcity of risk capital. These issues are being addressed in this contraction and the low interest rates, growing money supply, and more receptive capital markets will eventually lead to a strong recovery. The market will continue to anticipate this and price in the improvement. 

The alternate interpretation is that this was a gruesome bear trap with a phony breakout and an underlying economy that has serious issues that lower rates are not and will not address. In this scenario, we would be trapped by a no growth economy beset by overcapacity, no risk capital, the absence of travel/consumer confidence, and a buyer's strike.

December 7, 2001- Jobs numbers show a loss of 800,000 jobs over two months, a mind boggling result. However, these are lagging numbers, and many of these cuts are temporary. Bonds accross the yield spectrum rallied. Equity futures are weak, but that may be more overbought issues looking for a pullback than the lagging numbers. The confidence numbers today are probably more important to equity traders. 

The market may be getting a little overbought, even though we are getting signs from the likes of Intel and AMD upgrading 4Q revenue forecasts. The debate continues between those that believe the market is overvalued, we are in a recession, and we are not going to see a return to corporate investment spending. Government spending and monetary policy are not enough to see this market continue its V bottom. Others, would argue we may be getting overbought, but the underlying technicals suggest the recovery will become apparent and will be robust. That recovery will boost earnings and justify the move. The old expression, by the time you know why the market rose, it will be too late to buy. We still have a ton of liquidity and a very cautious retail segment. That is where the next wave of buying will come. While you might wait for a mild pullback, tis the season to be jolly. 

If you think a pullback is needed, then pulling back to the breakout points of 1935 and 9975 might be logical. However, the strength of the breakout suggests only a minor move down.

December 5, 2001- Technical buy signals and a positive NAPM report got the market going and it hardly looked back with strong trading in technology and cyclicals. The NAPM report shows we are growing again. Given the amount of stimulus, the recovery could be quite robust. The breadth and volume and close were all strong, and we bested the 200 day moving average on all the indexes. We have talking about this overhead resistance and now we are over it. Based on the breadth and volume, it would appear this move is sound and underscores the new trend. Don't fight the Fed and Don't fight the tape. 

December 5, 2001- Strong breadth buoyed by a sense that loans to ENE might save the company, as well as apparent gains on the battlefield, seemed to boost a market after a recent pullback. Whether this is enough to launch a successful assault on the overhead resistance remains to be seen. Breadth was excellent and the market closed near the highs of the day. There may be a growing feeling that it could punish results to be out of the market at such a seasonally positive time. Technology continues to anticipate a brighter future. Cisco indicated its sales were on target suggesting we are at the bottom. 

The NASD closed above the 200 day moving average. Does this signal the formal reconstitution of the bull market. There is a good chance. The Dow and the S&P 500 still has work to do.

December 4, 2001- The declaration of war ends the peace travesty, and unleashes the military might of Israel to attack terrorists and their state sponsors where the US would have difficulty justifying military action. This is appropriate response for Arafat actions. It is also justification since it appears there is not a true desire to achieve peace or recognize the rights of Israel. The US has neutralized Israel for many years and now this formidable country is part of the team out to destroy terrorism. This is a hugely significant strategic element in this conflict. 

The Enron situation, the Middle East, and the rising price of energy all hit the market, but not in a very restrained and orderly way. The market continues to show resiliency. The incomes news was quite strong. After a period to pullback from the overhead and digest the unfolding news, we could set up for a stronger backend of the month and year. 

Energy stocks were strong as it appears OPEC is now sucking up to the Russians to make them an informal part of production reductions. 

December 3, 2001- 1,930 to 1950 on the NASD and 10,000 or so on the Dow Industrials represent important overhead and the down-trending 200 day moving averages. We have come a long way in a short time and it is possible we sideways consolidate to await news and buying power. Many of the important underlying technology sectors are also nearing important resistance. Betting the whole roll until these important hurdles are surmounted is not advisable. Additionally, breaking over these levels intraday is not a buy signal. We need to hold above these levels for a couple of days, closing near the top of the daily range, with rising volume and strong breadth thrust to give the signal this is a genuine move into strong bull territory. The charts clearly show, in baseball parlance, that "something has to give".

Meanwhile, there is strength in selected technology (including box makers), home improvement, subscription satellite radio (SIRI), and some internet stocks that have a profit model. EBAY continues to stand out as a beacon of a real business model. Surfers have become so adept at getting information for free and avoiding all advertising, that only transaction oriented sites like EBAY are really producing strong results. This electronic flea market/auction has raised haggling to an art form.

November 30, 2001- GDP was bad but hardly surprising. We have truncated the recession, in essence, by liquidating inventory, streamlining operation, right-sizing businesses, etc. which could lead to a more pronounced recovery when it comes with a foundation of very low interest rates and positive fiscal backdrop. While the futures are showing weakness, this may reverse. The fourth quarter is typically positive. Greatest strength yesterday was in technology.  

This could be the shape of a 1-2-3-4 pullback with more upside to come. 

November 29, 2001- The downgrade of Enron and the invoking of the material adverse change clause of the merger, sent ripple effects through some major Dow components including the lenders (C and JPM) and GE, a significant supplier. Additionally, this was a well known company whose CEO was considered for Treasury Secretary and whose name is carried on America's most recent new monument to baseball. That a virtual icon could have cooked the books to this extent is a sad commentary on corporate oversight, morality and truthfulness. However, we continue to believe the major moving averages overhead, the fact we are overbought and extended, and the fact we are not getting strong recovery news yet made this pullback inevitable, regardless of the news. I would be inclined to view this not as a massive bear trap, but a pullback (2% to 3%) or a correction (5% to 7%). 

It should be noted that we are past tax selling and approach strong seasonal cash flows. Generally, markets have anticipated the January effect in December, so I would think this digestive period could be short. 

November 28, 2001- Consumer Confidence fell. MSFT is dealing with the balking of certain states, notably Connecticut, on the antitrust agreement, potentially reopening Panadora's box of unresolved conflict and unrestricted legal fees. Rumors about a Home Depot earnings warning hurt that stock. However, existing home sales were strong and the forward element of Consumer Confidence suggested consumers expect the economy to be stronger in six months. On the positive side, Veritas expressed confidence in its current earnings and outlook. Despite the good news, bad news elements, the market focused on the headlines and sold off, aided by a V bottom and overbought condition. The existence of large overhead is also hurting trader's confidence.  

We have been mentioning these overhead resistance levels for some time, and the V bottom off the lows suggest a period of trading to establish a new trading range where we can await the news to embolden the next major move. In this environment, companies with tremendous earnings certitude might be ideas worthy of consideration. They will give you consistent earnings in uncertain times, and the low interest rates can underpin the high P/E's. Kohl's, Harley Davidson, Veritas, DH Horton, Tyco, etc. are some of the ideas in this earnings momentum category.

November 27, 2001- Big surprise. We're in a recession. The market is looking ahead, expecting a recovery, and already discounted history. Now it is on to recovery, and some signs of strength in technology beyond outsourcing. Chips were strong, along with wireless. Amazon was a monster on strong retail reports, and YHOO and EBAY went along for the ride. All in all, a pretty good day, but we do need to vault some overhead to really breathe fire into the markets. 

1950 or so is important overhead for the NASD. 10,100 is the key area on the Dow. 

November 23, 2001- I do not like the overhead, the consecutive closes near the lows, the relatively high volume, and the overbought condition, and the fact these conditions exist during the normally strong pre-holiday trading sessions. Whether this is a pullback, a retracement, or the end of big countertrend rally remains to be seen. However, in light of the very low interest levels, federal spending, the strong new uptrend, I would argue for a pullback or retracement, not the end of the countertrend rally. I would look at earlier stage cyclicals, and technology for overweighting as this possible retreat creates some better value. 

November 21, 2001- That was a worrisome close to the averages with a relatively high volume close near the lows. While some blamed it on poor Deere results, and the fact we are "getting way ahead of the fundamentals", the overhead supply and the fact we are overbought may be more important. The charts below show the issue in bold relief. Normally, the day before a holiday reveals a strong propensity to rally. If not, then I suggest we are in for an overbought retracement. 

November 20, 2001- Here we are, right below major overhead and the 150 and 200 day moving averages. The breadth of the market (showing true strength) is good. Normally, pre-holiday sessions are biased to the upside. Technology and early stage cyclicals are carrying the ball, with recovery in some of the victims of 9/11 continuing. Stocks like Disney are interesting speculations. 

On balance volume is very strong. There appears to be no hesitation as we approach this area.

November 19, 2001- I hear a lot of "the market is getting too far ahead of itself". The market is always ahead of the news and the economists. The market normally is an unbelievable forecasting tool. Right now, we are getting a sense the market is believing the economy will recover and that we will continue to post "W's" on the battlefield. Friday's trading revealed little other than the normal tendency for trader's to take some off the table. We are seeing signs travel and tourism stocks are under some accumulation. Disney, at only 8 times cash flow, is looking interesting, albeit speculative.  

November 15, 2001- Jobless claims were much lower, gasoline prices erode and inventory levels showed strong reductions, all of which could set things up for a recovery of economic activity. Clearly, the Dow and its economically sensitive components are sensing recovery. AMAT's poor numbers retarded the NASD, which closed narrowly down for the first time in a while. 

Moving forward, the continuing defusing of the terrorist threat without further incidents should allow consumers to return to normal behavior. Mortgage refinancings, tax rebates, lower gasoling prices, etc. could all give people the spendable funds for a surprisingly strong 4th quarter. The accumulation in the NASD is exceptionally strong and should prefigure more gains, even in the face of overhead supply. 

November 14, 2001- Strong October retail sales, very strong mortgage refinancings, and lower gasoline prices combined with encouraging news from the battlefield to give the market some more push, even though we are overbought and in some resistance. America appears to be getting back to business. The on-balance volume is strong. Will it be strong enough to get through the overhead. Supportive business news and continued success in the war on terrorism must combine with a normally strong fourth quarter to vault the overhead. The same is true of the Dow.

November 13, 2001- The apparent collapse of the Taliban in the north of Afghanistan, gave impetus to the market which rallied with strong breadth and volume. Early futures show strength as well. A break above 1955 would clear the 150 and 200 moving averages. On balance volume is exceptionally strong. For the Dow Industrials, a break above 10,100 with strong breadth would imply we are back in bullish territory. Yesterday's action was encouraging. Strength in technology, retailing, transportation, and security was evident. 

November 12, 2001- Recently a Pentagon spokesman, in describing the bombing, said that the Taliban was being "eviscerated". It now appears he was right, as the Taliban retreats into a last stronghold with little capacity to launch a counterattack. The market's clearly will rally on this news and the apparent conclusion that the tragic crash yesterday was mechanical failure not a terrorist act. Technology seems to be on the cutting edge of pre-market trading. It would appear early stage cyclicals should also be garnering some support.   

November 11, 2001- As battlefield victories combine with greater sense of security and confidence at home, and very lower interest rates, we could begin to see tangible signs of economic recovery. Clearly, the market is anticipating this to some level. The PPI numbers were down 1.5%, suggesting is not the issue, but deflation may be a bit of a thorn. Dynegy is going to take Enron out of its misery. This is one more example of fraud, which must be dealt with in a strong fashion. Our economy and capital markets depend on accurate and believable numbers. Those that threaten that confidence do much more than threaten the holders of securities in a particular perpetrator of fraud. Between Sunbeam, Oxford Health, Cendant (CUC), and Enron, we are seeing too many examples of this. In each case, the perpetrators have seen no punishment, other than pangs of conscience, which probably, in their cases, is of no consequence. 

The market is entering some overhead, and getting through this congestion may take a pullback. Additionally, many of the tech names that drove this strong move, are now decidedly not cheap. I place Microsoft, Intel, Sun Micro, and Cisco in the category of expensive and not attractive. The rest of the chip area is still attractive, along with financial services and some early stage cyclicals. We could see gathering strength in fourth quarter sales, so retailing warrants a look. 

November 9, 2001- We are overbought, particularly in some of tech areas like chips, and need to retrace or pullback to gather energy to assault higher ground. There is a fundamentally positive backdrop which should bias the markets to a continuation of the uptrend after a pause. 

November 8, 2001- Technology and financials had a good day, even though whip-sawing action concluded with some late selling. This morning, futures are strong with technology again leading the charge. I think when investors accept the inevitability of the recovery, we will be in need of retracement. The market is starting to do some serious discounting of an economic recovery. The intransigence of this economic weakness is still unknown. However, just as the market was not wrong when it began its long collapse, it may not be wrong now. Strength is evident in many of the original high flyers like Veritas, Ciena, Q Logic, most chip stocks, and financial brokerages. 

November 7, 2001- Technology and early stage cyclicals are generally strong while defensive groups and energy are showing weakness. The Fed 50 basis point rate reduction was the prime mover of yesterday's strong close. Market Timers would take heart from the tape, the Fed, sentiment, and valuations that are reasonable. Naysayers would point to overhead supply, an economy that is exceptionally weak, and financial results replete with warning, layoffs, and foggy forecasts. These negatives generally can be dismissed as constituting the "wall of worry" a market must climb as it discounts an improving future. 

Continue to monitor volume and breadth for indications that the overhead can transcended. 

November 6, 2001- Cisco's earning and the prospect of further rate cuts from the Fed propelled the market. More importantly, despite serious erosion in economic activity since 9/11, the market continues to look beyond current data. The market moves higher, apparently discounting economic recovery and a victory over terrorists. As people adjust to the threats and go about their business, the market's can recover. 

The activity continues to be in technology, which is showing a large number of rounded bottoms and stocks trading over the 50 day moving average on rising volume. We have had a great move, but we get closer to massive overhead at 1905 to 2000 on the NASD. We need an increase in volume in breadth to suggest we can vault those levels. 

Ditto for the Dow. 

November 5, 2001- We are in an area of resistance and the news will guide trading action. 

November 2, 2001- We are seeing significant volatility in this retracement, which could prefigure another significant move. The problem is figuring the direction of the move. Typically, market timers would probably argue for a continuation of the recent uptrend, based on the trend, the Fed, the prospect of economic improvements six months down the road, and easier earnings comparisons going forward. However, we have a great deal of economic and corporate uncertainty, a loss consumer confidence, an uncertain terrorist threat, and more negatives. To the optimist, this is the wall of worry that every market needs. After all, if optimism has peaked, every investor is committed and there is no liquidity left to bid up prices. 

We have a cataclysmic X factor in all this, the biggest of which is fear itself and the extent to which it retards commerce in its myriad forms. I believe people and investors will adjust to the risk, and start calculating the small odds of a real cataclysmic event, and go on about there business. It is interesting that auto sales in October were strong driven by 0% interest rate deals. The same can be said for flying, hotel occupancy, etc. While we may be establishing a trading range, I believe we are far more likely to go higher than retest the lows.

The charts show an overbought condition in overhead with a need to consolidate in order to go higher. The purple line is on-balance volume. 

The Dow Industrials present major overhead, even though valuations, given the low level of interest rates, are reasonable. 

November 1, 2001- There is little to suggest that the news and the downward sloping major moving averages are not calling the tune. Until the market hit overhead supply in its revival, there was no news, no matter how bad, that could deter the market's upside recovery. Now, the bad news is really bad. Now, we have to deal with more risks relating apparently to our nuclear facilities. This would be consistent with using our freedoms and our technology as a weapon against us. 

Every market has uncertainty, where legitimate bull or bear postures can be supported. Now, we have new elements which create imponderables beyond the normal predictive conundrum. Basically, we are back to the general levels of 9/10. Is anything better than before the attack? Actually, things are probably worse and the economy is now looking at a seriously depressed performance in Q4. Caution is warranted. 

In this environment, look at stability of revenues and earnings, but with valuations that are attractive vis a vis interest rates, the market, and the historical valuation ranges of the stock and the sector. Free cash flow and dividends add confirming elements of substance. 

Relative to the charts, we are overbought and some retracement of the huge recovery move, is warranted.

October 30, 2001- The bad earning, the bad economy, more Anthrax, the fact we are overbought, and the increasing sense we need ground troops to win the war in Afghanistan all conspired to rock the market. Of all these factors, the fact the market is overbought is probably the most important. The rest of the news is build into the market. 

October 29, 2001- It is good news that the market rallied in the face of continuous bad news. It suggests the market is predicting an economic recovery, an earnings momentum reconstitution, and a victory against terrorism. I happen to agree and think the market's will proceed higher. Technology is leading the charge. Now energy is staging a strong rally from a deeply oversold condition. 

However, we have a V bottom, and are getting overbought and approaching overhead and downtrend lines. A pullback to regain strength is advisable and probable. 

What will provoke a pullback? First, the war effort is, in my estimate, going poorly. We are attempting to get an ill-quipped and undermanned army to carry the ball in the land war. They have lost their leaders and await supplies from Russia. Second, we are mixing objectives and the political and PR efforts are forcing us to pull our military punches. We do not need the State Department running the war. It is a bad formula. Reference Viet Nam to find out why. Finally, the earnings news and commentary will continue to be bad. Q3 and Q4 are going to yield some very nasty data for the market to chew on. 

October 26, 2001- Just when breadth was putting amber light in our face, we get atrocious unemploymnet claims numbers, more Anthrax scares and pretty miserable financial results, to add to the caution. Predictably the market rolls over, but... wait, then it rallies again, this time with good breadth and volume. Technology, energy, cyclicals showed strength while defensive stocks were weak. The NASD broke above some important resistance 1750. The market is looking over the abyss and showing some vision and conviction.  

NASD on-balance volume is very strong and the 150 day moving average is around 1911. Meanwhile the Dow broke above the 50 day moving average on good volume. To rally in the face of this news show good underlying technicals. There is an old expression. By the time you know why the market is rallying, it is too late to buy. 

October 25, 2001- We are starting to see some deterioration in the advance/decline line and, while technology is leading the charge, the important financial sector is still not getting far off the mat. In any move, up or down, it is essential to look below the index and check the breadth. We are starting to see a negative divergence. This suggests we may have a need to retrace or do a sideways consolidation to gather facts and conclusions. The facts will involve the earnings season and comments, the economy, and the battlefield. It is not hard to construct a favorable or unfavorable scenario.

There will be battlefield frustration, as well as technical and fundamental obstacles. First, we are mixing military and political objectives. It is difficult to win a political and military victory in the war against terrorism, since the very vocal fundamentalist forces, including the clerics, hate America even if we blanketed that part of the world with rose pedals. We are told to stop the bombing, observe Ramadan, get out of Saudi Arabia, cut off Israel, ruthlessly suppress women, and relinquish our freedoms and submit to the Taliban. Then, we can win the PR campaign. In other words, unless we capitulate completely, we will remain the scourge of the fundamentalist world. 

We need to concentrate on defeating the enemy and getting the moderate Arab world to recognize they are more threatened they we are. We must win the the military battle, and convince the moderate Arabs that they must incarcerate radical clerics who have perverted the religion they purport to represent. 

AS we fight these battle, we will have to overcome the spotty leadership in the Senate, with Senator Joseph Biden calling the US a high tech bully. In an economy move, Biden is sharing speech writers with the Taliban. 

October 24, 2001- More Anthrax cooled the market again. If you think a "wall of worry" is what a market needs to rise, you must be happy. The "wall of worry" thing is useful only if the bad news is more than in the prices of equities. To determine this, one must use conventional valuation measurements, such as P/E, P/CE, P/BV together with measurements relating to reliability of revenue and earnings and, in this recessionary environment, financial strength. Financial strength analysis would look at financial leverage, debt coverage, current and quick ratios, and "worst case analysis" that would look at survivability in adverse times. 

An investor might also look for companies that might have some catalyst to change the street's view of their prospects, such as a management change, restructuring, jettisoning or closing losers, etc. So what looks good from that perspective? Here are some names you should review. EMR< SDC, SYMC, SII, CNMD, DHI, C, FDX, WMB, WB, and WM. These are sleep at night stocks, that are cheap enough to buy and hold. Energy is probably the cheapest area at this point. 

October 23, 2001- The market is showing serious strength into the overhead resistance. The market, as a discounting mechanism, must be looking at some potential positives. Given the very sad economic and geopolitcial contemporaneous news, the market must be seeing a victory on the battlefield, and a V bottom in the economy and market. If so, then look at early stage cyclicals, including some tech, and financials. You will want to avoid defensive issues. Do I agree with this market assessment. I believe it is the most reasonable scenario, but not the only scenario, so be flexible. I also believe the market is constrained by say 10,175 on the Dow, 1800 to1,975 on the NASD and 1175 on the SPX. These points are areas of massive supply and the 150 day moving average.  

October 22, 2001- As illustrated by the following charts, the market is going to need some serious inspiration to overcome these downtrends and overhead resistance. Winning the war, a reconstitution of spending, some sense of peace in the Middle East, and a sign of substantial unmet demand boiling over into spending, could be some of the sparks. However, these may not be forthcoming. We do not, therefore, have green lights, only amber. 

What to buy, or stay in cash? Should you buy defensive stocks, or anticipate a V recovery and load up on cyclical plays particularly in the very depressed travel area. Should you go thematic and focus on bio-terrorism, troop transport, security, data strorage, etc.? What about financials, particularly lenders with a steep yield curve to play? You can make a reasonable case for any of these approaches and disagreement, as usual, is rampant. These are reasonable questions, but here are some more.

What is the real impact on current economic activity and earnings of 9/11 and have adjustments been made to forecasts? What will be the impact of follow-up attacks on consumer confidence and spending? If we have a very protracted and very dirty war, with some battlefield losses, will the good patriotic feelings be supplanted by doubt, debate, and discord? It is not enough to dismiss these issues by saying that the market needs a "wall of worry" to climb. 

Technically, the market has basically recovered the losses subsequent to 9/11, and sits now in an area of overhead supply. The market's behavior last week bespoke that resistance, although much of the poor performance was imputed to Anthrax. While we have established a small new upchannel, I believe the overhead resistance may require some real victory to overcome. Otherwise, stocks are not that cheap, and uncertainty abounds. 

I remain deeply concerned about the degree to which unbridled hate in the Middle East has taken hold, and the extent to which religion is being used to poison perspective and generate antipathy to the West. To an extent, the failure of the Muslim world to defend against religious terrorism is setting this up as a struggle between the West and Muslim world. While we are doing our best to avoid this conclusion, it is becoming more obvious with each day that Muslim clerics freely intimidate their governments and any moderate forces. This would appear to be a war that will not be won with reason, but with raw power, and the amount of collateral damage will further inflame hatred. So be it. 

Israel's market lives with omnipresent terrorism, but its market has survived, but it does have a  valuation discount for the risk. Additionally, it has moved capital offshore to protect its business. At this point there is no safe place. With these myriad issues in mind, I believe the market is in an area of congestion and will await battlefield and economic news to take its direction. A healthy amount of cash is advisable given these issues. However, a balanced approach using cyclicals, tech, and financials is advisable. I simply cannot get behind consumer non-durables, since they are very expensive and have little growth. 

Thematic ideas like Titan and Atlas Cargo have moved a good way and are in overhead. A retracement might provide a buying opportunity, but not now. 

October 19, 2001- Investing and trading is always difficult and subject to intense debate between bulls and bears. Now, we have other factors that are making fundamental and technical debates just background discussions. Last night we had Microsoft announce strong results but early futures are weak. The NASD still is an uptrend, but is encountering strong headwinds as it goes. If the markets can close up today approaching, it will be a very positive sign. However, the reporting of the Anthrax news has become obsessive and the resulting fear is disproportionate to the risk. 

October 18, 2001- The positive technology news (OK, IBM and Intel hit lowered estimates) met a wall of worry in the form of more Anthrax scares. The market is having a hard time with perspective and proportion, and, the market is being hurt, not to mention the economy, which is reeling from these fears. Perhaps we would be better served if the news services announce deaths from cancer, heart disease, etc. I am not suggesting we forget or ignore the risk, I am suggesting we put it in perspective. You would be better served modifying your diet and adding exercise to your daily routine than changing your travel or work schedule. 

Technically, the market's higher opening, and close at the low, created an "outside day", a nastry technical signal showing the buying is spent. It is best compared to throwing a ball in the air. When the apex is hit, it is followed by rapid descent to the next support level. While this "outside day" may have been triggered by Anthrax panic, it probably does not negate the message. We have come a long way and now sit in overhead congestion. We are in the area where the market lived on September 10, 2001. Frankly, nothing is better today than then and you could make a case it is far worse. Take a little off the table. 

NASD has immediate risk to 1600. 

October 17, 2001- You got the sense the market is sensing an imminent victory in the war against the Taliban and bin Laden. Nothing like the AC130 to embolden a market and rattle an enemy. Gatling guns at 1800 rounds per minute and 105 mm rockets can definitely mess up your enemy's day. Having been in Viet Nam in the infantry, I can attest to the ferocity and shock value of the these weapons. After a listless day of trading, the market got going toward the close, which has been a distinctive part of this rally and a good technical sign. After the close, IBM beat the estimates by a penny, causing tech to pop some more in the aftermarket. Living in Boca Raton, I can assure you I see no signs of panic or disruption in the normal course of life here. The weather is 85, sunny, with a mild tropical breeze. Come on down and see for yourself. I think we are also seeing that the resilient America we love is dealing with the threat and going about its business.   

October 16, 2001- The markets have made a huge move off the September 21, 2001 lows. We are overbought, in overhead, and in the earnings season where, once again, the results will be poor and the commentary morose. If the market can see a V bottom in the economy, and contemplate the easy comparison going forward, together with very low interest rates and stimulative fiscal policy, we could continue upwards. While this is a somewhat easy argument to make, we do have a highly combustible international situation that will create victories and defeats. We must trust, as investors, that the markets will put these announcements in perspective after a momentary emotional reaction. 

It is interesting that stocks that people were hot to buy at 80, they now will not touch at 10. Part of this is the psychology of a bear market, but it is also a greater understanding of technology and the degree to which the secular bull market is over, business is cyclical, competition is intense in every product category, and valuations are not cheap or compelling. This last piece may ultimately constrain the market in terms of reasonable upside targets. 

The 50 day moving average and a zone of supply could cause some backing and filling. 

Same basic comment.

October 15, 2001- Technology dominated the list of positive stocks, while financials dominated the weaker elements. Deeply depressed names like Texas Instuments, Cienna, Veritas, Q Logic and Emulex are breaking above their 50 day moving averages and showing strong volume pickup. The overall market went south precipitously as soon as the NBC Anthrax case was made public, but as the day proceeded, the market recovered most of the losses with the tech dominated NASD finishing in the positive. Increasingly, there is a sense the September 21, 2001 selloff may constitute the lows. However, this market is extremely sensitive to developments on the war front. Curiously, the market is looking beyond the very negative domestic economic environment. Seemingly, the market is discounting victory on some level, and a stronger economy as we move through 2002. 

October 12, 2001- Technology and homebuilding led the pack, but in evaluating these groups, it is evident that overhead lurks just north of here, and prospects for bad news are high. The market may have gone too fast from total pessimism to looking beyond the abyss. Some caution is warranted because we are overbought and the economy will continue to produce disheartening results. Additionally, we face some major battles as we move beyond Afghanistan and confront the violent world of Muslim fundamentalism, which espouses violence and terror to defeat the west. Until we see concrete signs the moderate Arab world is willing to incarcerate clerics who espouse violence and terror, our path will be strewn with confidence busting events. The country who has suppressed radical Muslims the most is Iraq, who has its own brand of secular terror. 

Tremendous day with volume and breadth all confirming the price action. We have basically retraced the damage since 9/10. Part of this appears to be a growing confidence in the military and its civilian leadership and patient deployment of US and allied power. It appears there is willingness to look over the very weak economy and see a better day where fiscal and monetary action actually work. Since its lows on September 21, 2001, the markets have moved up almost 15%.

We have exceeded the closing price on 911 and now must break the 50 day moving average. 

The Dow is short of 911, but today's strength in tech, financials, and energy, which obviously have been weak, could make up the balance of distance with energy to spare. 

October 11, 2001- We basically are back to the levels of 9/10. If we can close above those levels on volume, I would become aggressive. While I think we are still in this trading range (see below), we are sitting at the top of the range and today's volume and breadth were clearly encouraging. Financials, which had been weak recently, were very strong and we need them to be in the vanguard for any real bullish movements.  

October 10, 2001- Typically, this level of aggressive monetary and fiscal policy would have triggered a huge market rally into a fully bullish chart configuration. However, the events of 9/11 have sufficiently destroyed confidence and spending to throw the market into confusion. Further, we still have the transition of technology and telecommunications from super growth to highly cyclical and richly valued. This transition cannot be bridged with lower rates and fiscal stimulus. 

Additionally, we now have the "sword of Damacles" over our head with respect to the battlefield and resulting reactions on the economic front. I believe that only a sense we will have a quick and visible victory on the battlefield will take this market out of its emerging trading range. This range appears to be 8,000 to 9300 on the Dow Industrials, 1359 to 1600 on the NASD, and 942 and 100 on the S&P 500. One final point. We are seeing the financials decline on rising credit loss fears. You want the financials to lead and they appear to be inadequate to that challenge. 

October 9, 2001- Are their any decent charts from the buy side perspective. Veritas Software, Ebay, Polycom, and Shaw Group all look good for some upside and standout in an otherwise bleak landscape. Take a look, as they all have some relevance to events in a troubled world. 

We are facing a long battle with many potential twists and turns, punctuated by many confidence deflating possibilities. We are in earnings seasons and the results and comments should be more than the most powerful anti-depressant can handle. While monetary and fiscal policy are aggressive, the markets clearly have only responded to the downside. I believe we have had a good retracement of most of the losses from 911, and are overbought. I think this pullback will not be arrested by the earnings. Battlefield results could provide a wild card, so keep an eye out. However, any good news from that front ultimately give way to the market's normal considerations. 

October 8, 2001- The market had a late day rally off the President's tax cut stimulus comments. But overall, our rally seems to be losing some momentum and a pullback or retest may be in the offing. See the comments from October 5 below.

In terms of the bigger picture, we have a market that is attempting to deal with a long war that will be fought on a new battlefield with an enemy that follows no rules of engagement or any accords designed to rid the world of bio-chemical or nuclear weapons. While Israel's markets are a good example of a country constantly dealing with terrorist threats, we may see a war discount built into our markets. 

Additionally, we now have another "wake up" call in technology and telecom. Both areas are highly competitive, with no pricing power, credit challenged customers, and in the grip of a cyclical recession. There was a time where these components of the new age had low multiples and we are probably going back to those valuations. Finally, it is hard to argue the old economy is cheap by historical standards. This could lead to an extended period of backing and filling, punctuated by victories and defeats in the war on terrorism. While a disheartening forecast, the fact that dramatically lower interest rates, more liquidity and fiscal policy has not helped equity markets should indicate it may be different this time. In fact the market's have fared extremely poorly as the Fed rushed to drop rates.  

During the 70's, our last protracted trading market, we created a market where traders made money, while investors went virtually nowhere. We could be back to that. 

October 5, 2001- Yesterday's swoon toward the close was suggestive that this rally into a gale of bad news had potentially run its course. Gateway and AMD are advising they will dramatically miss the estimates. At this point, I think the market has had ample time to digest the virtual cessation of business post 9/11 following an already weak period. If, in fact, we are on the way to a rally of significant proportions, it would be customary to have a re-tracement of the recent gains. On the other hand, this could be a retracement in a downtrend that remains fully in force and in control. Which is it?

Volume and breadth on this bounce was reasonably good. On the other hand, we were oversold before 911, and got even more oversold in the tremendous downdraft. Retracing to the point of a breakdown would be normal. I personally believe we are attempting to put in a bottom and buyers are going to be very cautious and there will be waves of selling into these rallies. Cash is going to find meager returns frustrating and will be emboldened to take some risk to buy value. In essence, I believe it is too early to know with any certainty whether you should buy into the rally or sell into it. However, the technical picture seems to suggest to sell into the rally. 

Here you see a retracement to 911 would be normal and not break any downtrends. This would argue to sell into the rally and await a retest. 

The five year perspective shows the recent rally has done nothing to break the downtrends, although we are in support areas from the '98 levels.

With the Dow Industrials, we have already had the 1/3 re-tracement. Technically, the poor close yesterday, suggests we will be thwarted at these levels and will need to pull back and even retest the lows.   

 October 4, 2001- Great breadth and volume as the market continues to aggregate strong days with closes near the top of the range. This is more than short-covering. Whether it was Cisco's comments, signs the economy may be stronger than thought, or the growing patriotic fervor, the markets had another strong, making up a good deal of the losses since September 11, 2001.

We are approaching overhead and this could prove problematic. The Dow is up approximately 13.5% from its lows, a truly impressive performance. I also believe the world is rising to the occasion and banishing the terrorist threat is going well. But beware of V-bottoms that approach downtrend lines and other overhead, and which might require double bottoms to assure proper support. We have about 100 NASD points to September 10 close. 

October 3, 2001- The Fed dropped rates and the sense we are nearing concrete action in the Middle East seemed to galvanize the markets, with even the long bond rallying, even in the midst of growing prospective federal spending to fund the war and kick-start the economy. 

The continuation of positive news is dependent on action on the war on terrorism. In the long-term, the free world wins, the economy is revitalized, and the stock market will be higher. Between here and there, defeats or disappointments or other terrorists attempts, could pose serious issues for our markets. Caution is still advisable along with sticking with real value.  

October 2, 2001- Someday, very soon, we will launch military activities with a very uncertain outcome. If the terrorist threat is neutralized with little pain or embarrassment in Afghanistan, we then will move sequentially to deal with the other heretofore safe harbors for this aberrant and disgusting behavior. It is difficult to game the market with this level of uncertainty. While markets need a "wall of worry" to scale, we do not need to have the wall greased. 

I am suggesting that care and cash are still watch words. We would favor steep yield curve plays, and some cyclicals with strong balance sheets and real value, say, a GM. 

October 1, 2001- Some pundits believe two strong positives are emerging. First, they believe the high volume sell-off of an already oversold market, shows that stock have migrated from weak to strong hands. Second, history suggests that 6 months after a military event, the market is significantly higher. Aggressive Fed policy and a meeting this week that could result in another 50 basis point drop in rates adds to the bull's arguments. Finally, given the low interest rates, the old economy is selling at attractive values. If we can neutralize the terrorist threat and have no additional events this will allow confidence to build and spending to re-ignite. This bullish line is not fatuous, but it does rest precariously on rebuilding confidence. 

What is the bearish argument?  I would say it boils down to the notion that we will need to have a retest of the recent lows before we can truly recover and the recent bounce is just short covering and wish fulfillment. The bears suggest there is no way we will avert another confidence training event with this impossibly volatile situation with an equally bewildering array of potential outcomes, many negative. Markets hate uncertainty and this rally is just an example of denial. 

So, to the normally complex analysis of economic and political events, we must now add the imponderable set of international events.  

If you believe, we can quickly suppress and defeat the terrorist threat, then this nascent rally could gain steam. Take a look at BAC, TYC, GLM, MWD, PNC. BXP, COF, SPLS,WMB, SMH, and MSFT. If you think consumer confidence will return to a high level, then overcorrections in RCL, CCL, and hotel and gambling stocks could explode. 

September 28, 2001- Increasingly, the economy and the elimination of uncertainty seem to revolve around the extent to which extremists are completely in control in the Middle East. Why? Without the arrest of Arab extremists and the destruction of terrorist cells in Lebanon, Egypt, Iraq, Iran, Syria, etc., the west will be forced to address each issue sequentially. Clearly, deportation does not work. Saudi extremist are sprinkled throughout terrorist cells around the world. The other country that uses deportation is Egypt. In other words, our economic recovery depends on confidence, which, in turn, depends on defusing the terrorist threat, which, in turn, depends on Arab country's unequivocally destroying these terrorist cells. I do not believe we will see the level of support we will need, and, as such, we will end up pushing the military button. I hope I am wrong.

Iraq managed to justify taking on the coalition against incredible odds. In the end they were talking trash and surrendering to camera crews. The point of this is that this is not rational and religion is being used by murderers and hate-mongerers. 

Despite terrible jobs claims numbers, that do not include many travel and tourism layoffs, and a weakening dollar and bond, many areas rallied without technology taking part. Financial and defensive areas were reasonably strong and the Dow appear ready to travel back to the 9,300 area where it really broke down. 

It appears the war against terrorism is being waged by the State Department, with an apparent desire to avoid, for the moment, military action which might allow fanatics to position this as Islam vs. the US and Israel. It is clear also we are taking one issue at a time, looking to eliminate bin Laden and his cohorts in the West first, and then work to eliminate extremist in other Arab countries later. This is a hugely complex matter with a multitude of fronts and enemies that cannot be fought militarily at one instant. It is hard to imagine an overnight scenario that would resolve both defense and economic issues. As such, rally strength (A/D line, up/ down volume, etc. ) must be monitored carefully to assess the probable magnitude of any rally.  

September 27, 2001- There was nothing to sustain the bounce, so it failed. But despite the weakness, we are still well off the lows. A lack of terrorist events, continued arrests, and some progress in the battle may help confidence and reveal some bounce in retail sales and travel and tourism. Cooperation from moderate Arab states and incarceration of their radicals, could provide fuel for buying. Otherwise, we must just watch and hope. 

September 26, 2001- We are seeing more examples of roundups that are heartening, but, at the same time, the reasons for these arrests/detainments are revealing the multiple avenues the terrorists were traveling. This uncertainty will be a ceiling on rallies until the outlines of our actions and the likelihood of their success is better revealed. 

In the meantime, there are groups that are being crushed. Any return to normalcy, could make these stocks extraordinary buys. The travel, leisure, and lodging business has been absolutely crushed. Their debt rating, likewise have pushed yields to over 6% over the like treasury maturities. As events unfold, these names (CCL, RCL, MIR, DAL, etc. ) should be on the radar screen.  

Volatility is expanding as the market now keeps fitful eyes on the war against terrorism, in addition to the economy and sector and corporate announcements. The ability of the market to close up is a strong positive and shows the market is finding value and is prepared to hold overnight. Make no mistake, however, that this will not be an overnight victory and could involve some tactical losses that will erode confidence. While I believe we can make quick work of this situation, I would not make a total "buy and hold" bet. 

September 25, 2001- Getting through the weekend without any further incidents, the fact we are getting back to work (if not normal), and the incredibly oversold nature of the market, led to a very strong rally with breadth that suggests we may get some follow through. To keep this going, investors are going to see more progress in the war, and some sign that flash signals from the economy are showing consumers are coming back to life. The market always has issues, but not like this. 

The good news is that we are very oversold, have the Fed dropping rates, a tax cut, and valuations that are starting to make sense. The bad news is we are now in a world with an uncertain outcome and timing and an economy in recession, beset with overcapacity. Investors should be putting their foot in the water and financials make sense. 

September 24, 2001- We have suggested support in the 8,000 area for the Dow, 925 to 950 for the SPX, and 1,350 area for the NASD. These markets are beset with uncertainty and rallies, for now, will probably short covering or working off oversold conditions. Early futures show strength, but this might be offsetting major selling last week which was anticipating more terrorist attacks over the weekend. 

Some area of probable investor interest might include REITs with Manahattan office space (VNO for instance) and teleconferencing, such as PolyCom (PLCM) or WebX . 

Keep your powder dry until we can establish what we are going to do from the fiscal policy perspective and what our military plans are and how succesful we are going to be in what time frame. We will win, but the only question is when we will visit our full fury on the heads of those that despise freedom. 

September 21, 2001- While charts may not prove useful, I'll do it anyway. The neckline for the NASD of this obvious Head and Shoulders and the uptrend line is around 1358.  The Dow looks like there is some support around 8,000. Support for the SPX is in the 925 to 950 area. However, if the enemy is isolated down to a controllable threat, and we are successful in the world-wide incarceration of terrorists, we may not get to these support areas. The next 24 hours will be key.  

Sadly, our comments from previous days still applies. It is doubtful that significant buying will occur before a weekend, and the early indication tremendous weakness will probably rule the day. This battle will take a long time. Unstated but obvious, is the fact that we will proceed sequentially to stop the terrorist problems, first in Afghanistan, and then in Sudan, Iraq, Syria, Iran, etc. The sequence is uncertain, but the objective is clear. I do not believe any of these countries can stand up, either individually or collectively, to the might of the US. Initially, we will ask these countries to eliminate their terrorists. As we uproot the Telibon and the terrorists in Afghanistan, we will move onto to which ever country that has not destroyed the terrorist they have harbored. Their steps must be demonstrable. These people have killed innocent civilians in the name of their supposed religion, so lying is just a "piece of cake".  The point of this is that the uncertainty of this campaign will provide a poor foundation for real market strength. While it is not out of the question, it seems that quick resolution is a remote possibility. 

One final point on the geopolitical backdrop (which assumes an importance not relevent in peace time) is that any terrorist activity from here on, could send the markets ever lower because of their devastating effects on economic activity. 

If the market is not cheap, what are the cheapest stocks on both an absolute basis, and a GARP basis. If one overlays a defensive component, or a thematic component, one would come up with the like of Sunguard Data (SDS), Guidant (GDT), Enron (ENE), United Health Services (UHS). If an investor is looking for a cyclical and inexpensive recovery play, then the Semiconductor Holders Trust provides a good vehicle for that. Since the yield curve is steepening, an investor should consider Bank America (BAC) and Washington Mutual (WM). Wireless is an interesting play with NOKia a place to look. These latter names have shown relative strength in this crash. 

September 20, 2001- Wait for some technical sign of a bottom. Do not arbitrarily pick one. Even the charts below do not provide reliable guidance. Look for a key reversal day, maybe after hitting the lows shown below. This will be a tradable rally for the nimble. We, however, need some action on the fiscal front and some sign of real progress on the international front that we are beginning to win the war. There is no assurance we will get those signs, but the reaction of the clerics in Afghanistan suggest they do not want more destruction.  

While charts may not prove useful, I'll do it anyway. The neckline for the NASD of this obvious Head and Shoulders and the uptrend line is around 1358.  The Dow looks like there is some support around 8,000. Support for the SPX is in the 925 to 950 area. However, if the enemy is isolated down to a controllable threat, and we are successful in the world-wide incarceration of terrorists, we may not get to these support areas. The next 24 hours will be key.  

Layoffs are mounting. The focus is travel and tourism, but we also are seeing that "just in time" inventory is forcing plant closures because needed parts are not arriving in time. Meanwhile, we continue to hear distressing comments about major profits from puts on reinsurance companies, and gains from defensive stocks. The dimensions of this tragic event seem to have limit. We also face arguably the most difficult military strategizing to ever face this nation. We do this without any useful or analogous military history as a guide.

This is a war that must be fought on a variety of fronts. The principal goal must be to deny radical Muslims (murderers who hide behind a religion that abhors this behavior) any form of oxygen. Oxygen includes safe havens (bases of operation), financial resources, armaments, communications, and the ability to intimidate by a willingness to die. Next, we must incarcerate anyone involved with or supporting terrorism.... immediately. We have more than enough to go on. This is war, and these illegal aliens do not qualify for America's civil liberties or any form of moral relativism. Our laws about illegal aliens and immigration need to be tightened. No visas from any country harboring terrorists should be issued until this situation is stabilized. We need to get our heads out of the clouds.

Very importantly, we need to see concrete signs that moderate Arab nations are willing to take definitive steps to squash radical movements in their own countries. Eqypt, Algeria, Jordan, Saudi Arabia, even Iran are as threatened by radical movements as the western world. Militarily, we must must develop our plan to maximize distress and minimize allied lives. We must not allow the Neville Chamberlains of the world to dissemble, distract, or de-motivate. Finally, our military strikes must be highly focused on those who perpetrated this crime and who have been denied oxygen. We need to make their defeat complete. Terrorists are not heads of state. They are soldiers in an evil army that can be shot on site.

Now, the stock market. We will get no real rally until we are showing concrete signs of positive developments on the multiple fronts above. Meanwhile the government must seriously contemplate capital gains tax elimination for eternity and maybe investment or jobs tax credits for a period of time. This market is not so cheap (at 20x forward fuzzy earnings) to overcome the adverse potential of the economy and the highly uncertain military future.  

Another confounding feature of events is the inability of the long end of the treasury curve to rally in the face of the loss of budget surpluses. The sense in the markets is that the government has eliminated spending constraints. As funds flee equity markets and the long end of fixed income markets, the short rates are dropping quickly. A Fed Funds rates of 2.5% in the next 6 weeks is not out of the question. This liquidity could propel a powerful rally if we get some victories.    

September 18, 2001- Several things are clear. There is no technical basis to buy stocks. The chance we are in a recession is higher and the possibility of recovery may be more difficult. There are several businesses that are devastated. Airlines, particularly the short haul business is in a very tough way. Much of near term course of trading will be determined by governmental action on the defense and fiscal policy front. It is not inconceivable that we can mobilize an overwhelming alliance, including moderate Arabs, that will root out terrorists in the world and confine our military action to very much overmatched countries like Iraq, Afghanistan, Sudan, and possibly Iran. These actions could spark a rally, as they did against Iraq in the Gulf War. If the President can also initiate action to eliminate the Capital Gains Tax, we could have the ingredients necessary to turn the tide.  

The Fed dropped rates 50 basis points, and numerous companies announced buybacks. The European Central Bankers also dropped rates. The markets closed off around 7% with great weakness in transportation, tourism, retailers, and some financial, while consumer non-durables, security, wireless and drugs showing strength. Breadth was wildly negative and volume was huge. This was not a panic and we are oversold. This market may need some positive event on the terrorist front to move. I believe it may be too late to sell, but too early to buy. 

September 17, 2001- For an extensive comment on the horrendous events of last week, please click here.  The charts are not terribly relevent unless we get a highly salutary and timely resolution of this situation.

September 12, 2001- Our sincere condolences and sympathies to the family and friends of those grieving the loss of loved ones. As a nation, we must react strongly. Part of this is insuring that the community of peace-loving, law abiding nations who value life are united in wiping out this threat. This is a diplomatic undertaking. We must understand our freedom, in a time of war, is diminished. Of an immediate nature,  the nation needs to be secured and reopening the airports until they can be examined as crime scenes strikes me as non-sensical. Second, we should consider national ID cards that are incapable of duplication so we can be sure who we live among. Inevitably, we will lose some of our freedom to control this threat, and our airports should be secured by professionals, not the keystone cops. 

It would appear axiomatic that these aircraft were piloted by seasoned commercial pilots to exercise that degree of precision. It is also obvious that multiple passengers were able to enter the aircraft with weapons (guns or knives or both) and this suggest duplicity or incompetence. Neither can be tolerated. We must have the time to find out what happened before we return to a full blown commercial schedule. 

The record of financial markets with events of this magnitude, to me, is unclear. If it is felt that we can galvanize actions that will quickly relieve the world of a threat and show the US resolve and strength, then the reaction could be positive. If, additionally, the Fed is adding money supply and congress in an act of unity, votes to eliminate the capital gains tax, to reconstitute investment spending, the reaction could be seriously positive. However, each of these contingencies is a bit of a stretch. Therefore, I expect the market to sell off, with little positive follow through thereafter. 

As people, we have all lost. Since the objective of this site is financial commentary, with no disrespect to grieving, we should discuss some of the financial fall out. Property and casualty companies with real estate exposure to New York. Companies with substantial presence in the World Trade Center have lost key operational personnel. Energy stocks probably will benefit. Airline stocks will be viciously cut in value. 

Longer term it would appear tall buildings are targets. Population density with limited entrance and exist would not appear sensible in these troubled times. Dispersion of work forces is sensible. Telecommuting is a sensible way to disperse people. The greatest fear is chemical or biological agents. This also argues for dispersion of population. This is a long term and evolutionary reaction to these events and the obvious future threats. 

Relating to Afghanistan, the likely host nation for the fanatical is a desperate, impoverished nation in the control of hate mongering terrorists who care nothing for life and regard suicide missions as a quick trip to martyrdom. Russia experienced their own Viet Nam in Afghanistan and we want to avoid that. As the host nation, they are difficult to hurt and punish. Militarily, it is mountainous terrain. It is land locked and staging areas are remote. Our choices will be difficult, but our resolve must strong. Our memory of this event must be long.   

September 11, 2001- Sound and Fury, signifying nothing. If volatility is a good sign, then we got a good sign. Unfortunately, so is volume and breadth, and these were not good. Other than technology, which is in a deserved valuation adjustment, the rest of the market may be setting the stage for a rally soon. Unfortunately, other than Microsoft, I cannot think of any tech company with controlling market share, bold new product initiatives, significant free cash flow, etc. The rest have tremendous competition, limited product cycles to recover development costs , lethal competition, and valuations that do not recognize fully the foregoing problems. 

Technically, the SPX is at a new multiyear low, while the Dow has broken the neckline of its later spring double bottom. Other than being oversold, there is little to provide technical optimism. 

September 10, 2001- We are oversold and retesting the April lows for the NASD and the Dow Industrials. However, the SPX is at a multi-year low, and this may be a harbinger for the other averages. While we a technically oversold, sentiment is getting bearish, and the Fed is lowering rates and increasing the money supply (historical positives), there is no sign that these moves are setting the stage for a real rally or reversal. Normally, at this stage into vigorous Fed action, the market would have rallied and early signs of economic improvement would be indicated. 

This coming week, we start early warnings, which could have an important impact on whether the old lows hold. We also need to see some signs the economy has bottomed. However, keep in mind that we have had strong monetary and fiscal policy stimulus. Neverthless, investment spending has been unresponsive. We are at the economic and market stage where many investors cannot conceive how the malaise will be ended. As is we do not have enough negatives, this is a seasonally weak period. Money flows are negative, and then we have tax selling. Can it get any worse. Well, the market is expensive, too. 

September 7, 2001- 8:45 AM- Jobs numbers bespeak tremendous weakness in manufacturing. Clearly, fiscal and monetary initiatives are not working and the market knows it. We need new initiative, specifically in terms of spurring investment and accelerating the money supply. Getting Fed Funds down to inflation, say 3% to 2.75% would help. A retest of the April lows is upon. Absent a key reversal day, which I do not expect, we are in the soup. 

So you want good news. Let's see. We are getting oversold, and sentiment is getting negative. Also, there is some sign the NAPM numbers are showing some of the very necessary inventory draw-downs have occurred. We are approaching retest on the SPX and NASD and whether we hold is absolutely critical. My fear is a close below the April lows will create a accompanying effects that could be extremely troublesome. A break will trigger more technical selling and create a much lower probable target. Equally troubling is the impact on consumer confidence and spending. In turn, this could impact banking assets, retail sales, etc., etc. We are devoid of safe havens, perhaps with the exception of energy and some consumer non-durables, but that area is filled with low growth/bare growth and high p/e situations. 

September 6, 2001- Here are some more random observations. Technically, there are few signs the market is ready to launch a rally of strength. Second, the markets, the CRB, and the recent rally of various defensive categories (drugs and consumer non-durables) are suggesting the economy is not going to come back within the next 6 to 9 months. The continuing erosion in tech prices is suggesting capital spending will stay weak in the face of a weak economy and overcapacity in every area of technology. Finally, it is critical the consumer keep confident and keep spending because the government and investment cannot carry the ball. If we lose the consumer, we could really find a crisis of confidence and all that entails. 

September 4, 2001- Markets like follow through, and rising volume as the day wears on. Investors like a big range and a close near the top of that range. Investors like breadth. The NAPM numbers were higher than expected, implying to some that the economy was not as weak as those obsessing about recession possibilities were suggesting. However, the market's close was abysmal as can be seen in the charts below.

After all the Fed action, neither the market, the CRB, or the economy is reacting positively. Typcially, these indexes will look ahead 6 to 9 months and anticipate improvements in activity, revenues and earnings. The fact we are not seeing this provides a strong statement about the unfolding scenario. What does it mean that Digital Equipment has been purchased by Compaq who in turn is purchased by Hewlett, which itself, is suffering?  Is it a statement about the difficulty in technology? Absolutely! Competition, on the one hand, and the need to constantly reinvent the company and the product line suggests considerable questions about true profitability.. Do these companies, in fact, really make money? When we look at Cisco's massive writeoffs, we see vivid examples of expensive stocks with no fundamental appeal. 

Couple this with the fact many names are just losing money, and still have high valuations on a Price/Sales exposes the fact the NASD is still in a serious valuation adjustment. In many cases, there is absolutely no assurance that sales will ever be converted to profitable operations. Are there areas of technology that are viable and fair value? Microsoft, chips as a group (try SMH), and chip equipment are worth a look but on a market weighted basis. Otherwise, energy and financials warrant a look. Until this market breaks above resistance, cash is a wonderful place to be.  

September 3, 2001- Hewlett buys Compaq! After being encouraged getting out of the PC business, it gets further in, with the hope that synergies will convert a relatively small loser into a big winner. Stock was used and there was a minor premium to market. While we are not seeing insider buying to ignite hopes of a rally, we are seeing some acquisitions, which I believe is somewhat encouraging. Energy is the area with the most action, which is also the cheapest from a fundamental perspective. I would expect to see more acquisitions in undervalued areas. Follow the corporate buyers, because they are putting some serious money behind their bets. 

Is there a catalyst that will turn this market around and reconstitute a bull market with staying power? Yesterday's weakness at the end of the day shows that being oversold before a long weekend only gets you a mild bounce with no conviction.

This simple question has a technical and a fundamental side, and a short term and a long term slant. Technically, we are oversold (based on the ARMS index, hitting the underside of a declining channel, and others). However, also from the technical side, we have broken important long term trendlines and have considerable overshead supply that will take very major breadth to break above. In the case of the NASD, those level occur between 1935 and above. In the Dow, breaking support at around 10,194 created important overhead at that level. Technically, therefore, an oversold bounce to overhead may be in the offing, only the quick and nimble will make money playing that game.

Fundamentally, we are not cheap either on an absolute or relative basis. The old economy names are cheaper than they were but not so cheap as to be screaming "buy me". Importantly, relative to bond yields, the earnings yield (earnings divided by price) is less than bond yields suggesting either we to adjust this imbalance to create some serious value buying. Specifically, the market would have to suspect an economic reacceleration and /or an imminent deline in bond yields or some combination thereof. Fixed income is looking more attractive to many ravaged investors and it may take some work to get them back into what they perceive as a rigged game benefitting only Wall Street. Right now, the market is saying it does not see either an economic turnaround or much lower yields. 

Is there a safe haven or some group or groups that look attractive. Energy, after a massive sell-off is oversold, fundamentally attractive, and with little perceptible downside risk. The defensive categories look overpriced with poor growth. Regional banks, are reasonably valued, and could perform well over a 6 to 12 month time horizon. Perhaps, Biotec could be a place to hide, but this can be a very dicey area, where patience and diversity is a serious virtue. Cash looks great now. Bonds also could be a good parking place. Otherwise, catching falling knives has been a very painful process. 

We must be very concerned that the consumer keeps spending. At this point, real estate equity, re-fis, tax rebates, and a still low unemployment are our only hope. We also must concern ourselves with deflationary possibilities, which really create negative profit implication. We have seen horrendous loss of pricing power in telecommunications (particularly long distance voice), PC's, and other areas. There is hardly a single area that is immune to intense competition. Price/performance in technology keeps improving for the buyers and getting worse for the sellers. 

August 31, 2001- A gruesome thought is the NASD spike and collapse is beginning to look like the Nikkei, which since it peeked in 1987, has been in a near recession and bear for 13 years. We have a viable and healthy banking system. They have a house of cards. They are in mature and slow growth businesses. We have commanding positions in most growth opportunities. Our old economy valuations are better than their market. While I believe there are positive differences for the US experience, I think the Nikkei illustrates that a bubble market can take years, even decades to work out. 

Our biggest concern now must revolve around consumer spending and valuations. If consumer spending goes negative, our whole economy will slip into a malaise that may prove tough to break, since monetary policy is near spent. Second, valuations are not cheap, with technology, in particular, being very expensive given the fact that are producing performance like a steel company, not a growth company. Without some pickup soon, these stocks will continue to melt away to levels where only the Price/ Sales ratios will provide a stop on the downside. In the early 90's, the likes of Intel and Nokia could be had in single digit P/E's.  

Here is the Nikkei, er, I mean the NASD. 

This is so unbelievably ugly that I will reserve comment since this is not an X-rated site. 

This looks like some unfinished business to the downside in a seasonally weak period that will also have more warnings and estimate revisions, many from earnings to losses. The good news? The weekend approaches and the it cannot get worse over the weekend. 

August 30, 2001- We broke key support on the Dow. There is little strength to be found anywhere. The fear of recession seems to be growing and continued tech warnings from SUNW ( which is suggesting it is losing money) and big layoffs from Corning were more negatives. 

Retests of the April lows now appear imminent. 

August 29, 2001- The market turned south after the consumer confidence numbers showed some erosion, even though the forward estimates were not terrible. The market is tired of waiting for good news. It appears we are going to have to see some signs of concrete improvements. This is a "show me" there is no willingness to suspend disbelief. As is typical, this is a market that simply can not sustain on the upside. We need more rate reductions and we need some sign that we are getting back in gear. Many think that will not happen until well into '02. Investors will accumulate value, but it is tough on traders because of so many sideways patterns.  

The market's greatest fear is that the consumer will trim spending in the face of job cuts, downsizing, etc. Since investment spending and government spending are not going to do the job, the loss of the consumer would clearly push us into negative territory and potentially produce a worldwide recession. 

August 28, 2001- There appears to be nothing going on in the markets, but beneath the surface there are some interesting rumblings. First, S&L's, which are notorious steep yield curve plays, are crumbling, suggesting that the Fed is near finished and the economy may be near a recovery. Second, this fact would suggest that housing may be in the late innings in its epic rise. Also, we are seeing semiconductors, broadly lumped into early cyclicals category, that shows signs of a very potent rounded bottom. It has not broken out but looks close. 

As usual, the sub strata is more dynamic than the service, but there are occasional visible fins. So, while the market goes sideways to down, there are sectors going up and going down. Energy appears to be the biggest value/GARP area available. It has suffered a major decline because of economic concerns and temporary oversupply causing erosion in gas prices. This is temporary. Drillers, and companies like Williams are worth a look. WMB is tracing out a head and shoulders bottom. 

August 27, 2001- Not bad for an August Friday, but overhead lurks at 1935 to 1950 for the NASD, 1200 for the SPX, and around 10,500 for the Dow. We need volume and breadth to lend credence to the possibility of a rally that will not end in the normal frustration. Being oversold is simply not enough to get you very far.

Much of investing success will hinge on the validity of your economic scenario. Forecasting the economy clearly eludes economists, so how could you do any better? The stock market and the Commodity Research Bureau are clearly pointing to continued weakness. In that environment, defensive stocks like drugs (generic and proprietary), consumer non-durables, supermarkets, etc. are the likely call. If, however, we are just in the darkest part of the night which precedes the dawn, then early cyclicals like retailing, housing, autos, and financials would be the call. Each category has made a run in the last several months as the market struggles with the essential economic question. 

The second key area is an adjustment process that is going on between ostensible growth and very high P/E's and real growth, with very low P/E's. We have often commented that techs are not immutable growth stocks, but their P/E's suggest their current problems are just a very brief hiccup. Meanwhile, housing stocks are valued as miserable cyclicals. Oil drillers, likewise, are valued are cyclicals. Housing and drillers, however, have enviable track records of growth as well as proven managments and have P/E's that are quite reasonable. You pick your poison. 

August 24, 2001- Cisco's after-the-bell, reorganization announcement and back-door suggestion business was stabilizing seems to be getting the juices flowing. This is an oversold market with some cash and some nervous shorts, which is provoking some early celebration in tech-land. Technically, the action is in consumer non-durables, generic drugs, regional banks, some REITs, and HMO's. Consumer non-durables are benefiting from a weaker dollar, and a growing sense this economy is not going to turn up anytime soon. 

The NASD is holding above the 1,800 level while the DJIA is staying above the now key 10,174 battle line. Those that had been keeping to a value orientation and buying chips as a early stage cyclical play have done pretty well. The risk now in getting involved with consumer non-durables is their low growth, high PE nature, and the fact that they will decline on any signs of economic recovery. 

A picture is worth a thousand words. Also, a pure technical reading of this longer term chart suggest a trip to the 1450 to 1600 level is not out of the question. Fundamentally, techs are not cheap given their true cyclical nature, their relatively high valuations, and poor technical picture.

The value plays are most apparent in the Dow which is trying to keep its head above water. If the economy resists stimulative monetary policy, then this rounded top makes sense. Additionally, many components of this index are expensive, particularly without growth. 

August 23, 2001- Oversold bounce without the underpinnings to suggest much follow through. However, I believe that eventually, the Fed action will have its affect, and it will be positive. I do not think we have completed the bottoming process. 

Our biggest market risk is that the consumer confidence and spending will erode and the last supporting leg in the GDP will put us firmly into recession. Consumers have stayed the course in the face of some real negatives and this is surprising. With a big decline in this confidence/spending, the earnings would drop another notch, the recession would prove more intractable, and the valuation levels on the Dow and other indexes would be even higher and less sustainable. Something has got to give.  

August 22, 2001- The book to bill ratio was just putrid, up from horrible and futures seem to be celebrating the news. There is a growing sentiment, as reflected by the stock market, that any recovery will be weak, gradual and not immediate. Therefore, we are seeing defensive categories rally including consumer non-durables, generic drugs, REIT's, HMO's and some food stocks. Some of these categories are also being buoyed by an apparent break in the dollar which could redound to the benefit of consumer non-durables and exporters. 

There are some problems with jumping on this bandwagon. First, consumer non-durables are expensive and very low growth. Further, a temporary pick-up for reasons relating to currency, is not a long term investment thesis. Additionally, if the economy does show any signs of re-acceleration, these names will reverse, and the dollar could rally. 

We continue to believe that any rally will fail at overhead at 1935 on the NASD and 10,500 on the Dow. 

Stock prices, not economists, are the best predictor of the economy and its future. Additionally, commodity prices are also predictive of future activity. Both of these indicators are pointing to an intractable economy with little catalyst for a recovery. As we have said before, low interest rates did not create the Internet (either did Al Gore), and low interest rates will not arrest technology's fall from grace. 

The Dow is sitting at the July low and a break would suggest a move below 10,000.

It is hard to escape the arrows pointing to the April lows. 

 While an oversold trading rally could arrest this index autorotation, it looks like 1800 and then on to the April lows. 

August 21, 2001-  Fear of the impending rate cut probably caused some tepid buying and short covering. The volume was extremely low and there is little to believe that this is the start of anything other than a proverbial dead cat bounce. All the averages are not poised to launch a meaningful rally, other than an oversold bounce. 

What happens if they cut by 50 basis points? There is the perverse possibility that rather than celebrate the market will read the Fed's panic in the collapsing economy. The most likely scenario is a failed rally attempt on the news, followed by more selling into September, when a rally takes us back to 1935 on the NASD (the breakdown point where prior support becomes resistance) and 10,500 on the DJIA. After that, we go back and retest into October, from which a real rally ensues. However, that rally would be confined to 3,000 on the NASD. It may be a long time before we hit the old NASD highs, like many years. Think that is unduly pessismistic? Just take a look at the Nikkei which hit 36,000 in 1988 and hasn't broken much above 20,000 and current sits around 11,000. 

August 20, 2001- Framing the Bull/Bear debate help provide some perspective to this unnerving market. Go here. Unfortunately, a Fed rate reduction of 1/4% is in the market. Perversely, a reduction of 1/2% would most likely raise the economic fear factor. There is nothing in the charts which are providing any hint of a buying opportunity. Further, the fundamentals rest precariously on the notion that economic activity can be revitalized by the massive rate reductions. Historically, that has been almost a sure bet. 

August 17, 2001- I want to belabor a point. If the Fed cannot reenergize the technology sector, our economy does not possess a growth engine. Without a growth engine, equities can only grow based multiple expansion based on lower rates and earnings growth. We are seeing lower earnings and we have already realized the benefits of lower interest rates. Therefore, looking ahead, we must lower our investment return objectives. We have come through an extraordinary period where investors lost their heads in a rush to riches. Equity markets are not the pot at the end of the rainbow, they are a snakepit. 

DELL announced and did not provide rosy guidance. This is causing more turbulence in techland because of the complete absence of visibility and certainty, two things markets need to move to higher ground. 

So if technology is mired, what about the old economy. It is not a screaming buy, but it is clear value is coming into vogue, and corporate America is going shopping and will potentially create an old world "Graham and Dodd" environment. This is where seasoned money managers can add value. 

August 16, 2001- The NASD took out key support yesterday, which could signal further weakness. There is no sense of climactic selling. In the 90's, the NASD would make it's adjustments in high volume days and get ready to rally again. We are now in a low volume, Chinese Water Torture kind of market erosion, befitting the bear days of the 70's.

What is wrong, that this market cannot come to grips with the unfolding landscape? First, there is little guidance or visibility from the corporate America. This is partly the result new disclosure standards, but more importantly, it is that there is little positive to say. Technology equities are not cheap, particularly as investors ask the question of why they should pay an extreme premium for cyclical stocks, with major "boom and bust" exposure. Cisco is experiencing sequential declines, is forecasting $.25 for the forward year, and sells around $19. While they did not dissuade investors from their prior guidance of 30% to 50% growth, they have serious competition and a worldwide recession. Get real! If this basic valuation methodology is applied to the NAZZ, you could see the old lows. My point is that a normal multiple for a highly cyclical stock should not exceed its real growth, say 25 times. This would get you a price of $6.25. 

At the inception of the 90's, Intel was a value play and Nokia could be had at single digit multiples. Cisco was a real GARP play. 

Another thing. This is a seasonal period of weakness, generally culminating with lows in October. We may get our lows sooner. While the Fed's loosening will eventually restore the economy, technology will have other issues transcending monetary policy. Unfortunately, technology is the growth engine of America, and it will be difficult to reconstitute our equity markets without their participation. In other words, we may be facing a prolonged period of adjustment to a slower growth and lower valuation era. Value will out and it is not now in technology. 

One other thing. The US dollar is getting blasted and this will benefit major multinational companies with exposure abroad. Our exports will have improved pricing and conversion of global results will translate into more dollars. 

The charts. The technical problem is that we are moving to the neckline of the April double bottom at 1800. At a time where Fed rate cuts would have normally reconstituted the bull market, we are still firmly in the bear's grasp. Why? It would appear the economy may be worse than believed, that valuations are high, technology will not recover strongly, and this is a horrendous time of the year to launch a bull market.  Relative to stocks, energy, precious metals, and consumer non-durables are showing relative strength. This is most unusual at this economic stage, unless we are truly slipping economically. 

August 14, 2001- Very low volume, very little conviction, and very little action on the price end. The Internet travel industry clearly defined itself as one with a profit model and consumer acceptance. The Cendant purchase of Cheap Tickets was a breath of fresh air. Fed action is impending, and while 1/4 is baked in the cake, they could surprise with 50 basis points, which could help a market sorely in need of real good news. As of now, we only have the expectation that this correction must inevitably end and you want to buy before the turn. 

While we believe the third quarter will yield more disappointments, writeoffs, layoffs, and murky future commentary, the investment community has more than enough time to grapple with the range of outcomes and price in the disaster. The chart patterns seem to suggest the bad news is in the price as the basing process adds maturity, but the market is not ready to price in good news for which there is insufficient evidence. Once the third quarter is finished, the positive money flows of the fourth quarter, and end of tax selling could suggest a strong rally in the fourth, accompanied by liquidity and improving business. Let's look at a couple of basing charts. Let's with the NASD. This basing pattern is replicated from the NAZZ to the chips. 

August 13, 2001-  Goldman Sachs announced they were turning positive on the chips, following SSB and Merrill in the "it can't get any worse" race. Technically, these stocks have put in pretty strong bases. On the other hand, the fundamentals are not promising (business or valuation) and these firms are "front-running", knowing they will eventually be right. If you do not have a trader's mentality, it is a good call. 

The market is at the bottom of its trading ranges, and if it holds we could see a quick trading rally off the base, with Goldman carrying the flag up the hill. As always, look for breadth and volume to get a sense of the magnitude of the trading rally. We have a trading pattern of long duration, suggesting the breakout or breakdown will be significant. The guess here is that it will be to the upside, unless we slip into a recessionary and deflationary spiral. While not a trivial risk, it is not a most likely scenario. 

The NASD took the day off, while the Dow staged a rally off the low end of the trading range. This average is officially mired. Money market yields look mighty tempting after this 3 year performance drought. This is the precise reason you do not buy the index. There are sectors that have produced good performance inside the average, providing targets of a technical and fundamental were set and adhered to. 

I would like to say something nice, but I cannot. 

August 10, 2001- If this was the middle of October and we were embarking on the normally strong fourth quarter, I would be more sanquine. However, we are in a period devoid of much news, and what is coming out are more cautionary remarks about lack of visibility. During this period, it is not unexpected that more eyes are turning to valuation. When this occurs one cannot escape the fact that CSCO is selling at 8x revenues and 90x forward earnings, that may, in fact, be suspect. 

Despite the fact many technology names have shaved over 50% of their values, they are hardly cheap. In the midst of what was billed as a secular bull cycle of epic proportions, investors ignore valuation issues. Now, they must address them. While some companies will retain their forward momentum with new products and sales (CIEN, MSFT, etc.), most of the tech names are not cheap, particularly if they are correctly viewed as ..... cyclicals. 

The PPI was down, now suggesting a deflationary risk, which has withering implications for pricing power, which now is firmly in the hands of the consumer. Operating leverage truly devastates earnings in a deflationary environment. 

August 9, 2001- This was a horrible day and volume was not sufficient to suggest this was hardly a capitulation low. Breadth was very negative and the moving averages are pointing down. August would be an unusual time to launch a counterattack on the bears. Equally, we approach key support, which, if broken, would invite more technical selling. The Fed beige book shows weakness in the economy. Good news? We appear to have more work to do both economically and fundamentally, before there will be any rewards for being a patient investor. It appears we will break support. 

We are about to test the lows. The Fed needs to act and taking the Funds rate down 3/4% to the upper end of the inflation rate appears to be one remedy. Immediately below are long term charts followed by shorter term charts. We are vulnerable to a test of the April lows. Given the Fed actions, this is an anomalous reaction, suggesting that investors, on-balance, cannot see an economic or technology recover in the 6 to 9 month timeframe. Equally, we have gone from a sentiment of not wanting to miss the summer rally, to feeling their is nothing to risk being in cash or short for the August to October time period. 

The longer term charts show the completely unprecedented "spike" in equity prices. Their are too truly disturbing pieces to this. First is the oft-mentioned fact that Fed ease has produced equity erosion. This suggests that nobody believes interest rates will turn it around and earnings forecasts will need significant downward revisions. Secondly, a major concern is that the consumer is still spending and confidence is OK. However, how many more layoffs will it take to shake that confidence and curb spending. It is not impossible, to construct a doomsday scenario.  

August 8, 2001- Cisco numbers met dramatically revised estimates, but revenues were down 25%. Further, the forward looking statements were not inspiring. Here is a company with 30 to 50% growth target, which have not been revised downward. This bellweather has overall market issues, economic issues, but also competitive issues. Additionally, their helter skelter acquisition program has created some squishy assets. With a forecast for next year of $.28 for the fiscal year, $18.50 is a rich price to pay. While CSCO should not be viewed as a proxy for the NASD, technology, or even network equipment providers, it will be. I would not be surprised if CSCO travels back to the low teens or worse, based on lower growth, competitive, and valuation issues. 

This is a seasonally weak period, and big things can happen on low volume, so this month could be very difficult for those expecting a tech rally. The semiconductor index stopped at overhead. Financials, retail, early stage consumer cyclicals, and energy may be low beta, lower risk havens. 

The ultimate risk is that technology and financials get antsy and start aggressive layoffs, because of loan losses and very poor visibility of a turnaround. This shakes consumer confidence and retail activity. Because of poor government spending and depression level capital spending the GDP goes negative. I believe this is a low probability outcome, but the market clearly is looking at that. 

The moving averages for the first time are starting to point in a downward direction.  

August 7, 2001- Dan Niles, an influential chip analyst, predicted Intel would drop a bomb, and drop prices dramatically to recover serious loss of market share to AMD. The result was that all of technology was blasted. The lack of any positive catalyst for the rest of the market and the lack of any buying interest caused weakness from start to finish and from stem to stern. For the NASD, it was the year's lowest volume. 

There are many thoughtful analysts (an oxymoron?), who feel we may be seeing the worst, but there will be no V bottom. Rather, we could see a prolonged and shallow improvement in technology conditions. The other factor becoming apparent is that investors are not willing to accept the notion that Fed action inevitably will lead to improved economic conditions. This very skeptical "show me" market has replaced the Growth at any Price and "What Me Worry?" market. The good news is that these are necessary ingredients of a bottom. However, they are not predictive of an explosive rally, and timing is always an issue.

Because technology's issues are not resolvable with lower rates, our economy may be captive to past over-building and permissive financing. To the charts. The NASD has bee thwarted by the downtrend line and the 50 day moving average, and the Dow by all the moving averages. Weak charts, indeed. In the case of the Dow, we have an emerging double top, which is also an ominous emerging pattern. 

August 6, 2001- Is this market cheap or expensive? Is it ready to rally off this base, or is the news going to send the averages back to its old lows of the late spring? After tremendous equity price cuts, and aggressive Fed action, is this the time for investors to look at history and buy, and ignore these debate issues? These are simple questions, but they simplify the issues. Additionally, the response is much more difficult than the question. 

I think buying the market or an index is stupid, now more than ever. This market is too skeptical to buy the cats and dogs and the good, the bad, and the ugly in one fell swoop. Future performance will depend on group selection, and within those groups, stock selection. For instance, I would select AMD over INTC, and MWD over GS (not so IPO dependent). I would be prepared to pay a premium for real value, new products cycles, and catalysts (like Microsoft), but would not pay a premium for a gloried past when competitive pressures make that premium risky (like Sun Micro). 

I would also follow the dictates of economic timing, and at this point, build in a good amount of consumer cyclicals like the autos and retailing. Technology must be part of the equation, and chips and chip equipment, plus an MSFT make sense. Medical devices should have an underweighted place. At this this economic stage, I would ignore consumer non-durables. They are slow growers and not cheap. The have undergone a decade long adjustment process and it may not be over. 

In essence, group and stock selection will govern performance. There are going to winners and big losers, while the indexes may not make much progress. In fact, I could see the NASD failing to break 3,000 for years, and 11,200 could be a ceiling for the Dow. While careful and disciplined investors can navigate these difficult straits, it will be a test. Successful investors will need targets, stops, diversification, and a willingness to ferret the winners out from the sea of trouble. 

Of a more immediate nature, these are charts that are not screaming buy. Rather, this is low volume base building, that is waiting for news for dictate the direction and magnitude of its next move. 

 August 3, 2001- While this is a good time for investors to be applying investable funds to a diversified portfolio of value names (financials and early stage consumer cyclicals), trading remains a difficult proposition due to lack of sustaining, high-beta momentum plays. Traders have expended great effort going nowhere. Other than skid marks, there is nothing to show for the effort. The volatility indexes are at fairly low, and non-bullish levels. Further, while breadth and volume are better, they clearly do not suggest that this is the start of much more than a tepid rally into overhead. Meanwhile, despite "dead in the water" indexes, financials and consumer cyclicals have done quite well.

Is there hope for high beta trading plays? If we see some more signs of stability and sell-through in technology, it would help. It is apparent we are putting in a base. If, in addition, we could take out the moving averages on rising volume and breadth, it could be the start of something meaningful. The old saw about "selling technology in March and buying in September" may come into play, as the market completes a base, and the fundamental restructuring advances. It would appear that it is not absurd to believe that a tradable rally is in the offing. Additionally, given the amount of cash and the wall of worry, it is not absurd to postulate that that growth money managers and some value players, might attempt to "front run" the September rule in August. 

You can see from a longer view that 2,700  to 2800 could be a reasonable target for a fourth quarter target. Eliminating the aberrant price performance of the 90's, such a move would be powerful and rewarding. Additionally, it may be fairly quick with the amount of sideline cash and shortcovering that could come into play. 

Optimism might spring from this view of the semiconductors. This is quite a chart with all the moving averages broken on high volume. This is an early stage cyclical and may prove a bellweather for the economy and the NASD which is so strongly influenced by chips and chip equipment. I do not think that this is grasping for straws. 

If you like going sideways, then this is your kind of chart. 

August 2, 2001- Futures appear to be pointing up for a continuation of the tepid rally. Maybe this is short covering, or some technical buying based on holding support levels. Maybe, the recent buys of chip stocks has rekindled the animal spirits or gotten investors to think about the future and an inevitable economic pickup in the next 6 to 9 months. There must be an occasional sprinkling of positive fundamental news to sustain the rally attempt. While a market must climb a "wall of worry", it helps little if the wall is covered with grease (a la the Japanese Nikkei). We do not believe that our rally will be thwarted by a completely bankrupt financial system and a complete intransigence with respect to addressing systemic issues. 

I want to address a fatuous argument I hear more of these days. Essentially, it is that tech is dead forever, will never recover to its old highs and is not worth buying at any price. First, it is not necessary for tech to recover to its old highs, which would imply a 150% return, and much more on many tech stocks. Second, technology is not a monolith. There will be companies with new products that will gain market share. If we had eight companies in a group with stock prices rising astronomically, that same vertical may only support three viable players going forward. There buying second tier names will be far less rewarding. Financial strength will be critical to buyers. Simply stated, you must be in technology, but, this time, you must be far more discerning in what you buy. 

Equally, you be aware that growth dynamics are constantly changing. DELL cannot sustain its original growth levels, and SUN will be equally hard pressed. Some of these names will trade sideways even though technology may some tremendous winners. Think big names can't plummet in a nannosecond. Review the pattern of Northern Telecom and Lucent. What about Compaq? New products, financial problems, higher costs of capital, lack of venture capital all point to financial strength and staying power being as critical as product cycles.

Microsoft, Seibel, Veritas, Applied Materials, and the semiconductor basket SMH may make some sense. But, do not overweight tech. Over-weighting of financials and consumer cyclicals and underweighting consumer non-durables is worthy of consideration. 

 August 1, 2001- For the moment, at least, the market appears to believe that the worst news is behind us, and that there will be re-acceleration of business conditions in technology, particularly the chips, where some pundits and issuing blanket buy recommendations, including Merrill's. The charts of technology are showing the formation of large double bottoms, but the patterns are not completed as the necklines must be broken to the upside on strong volume. However, it is very clear that the downside momentum has definitely slowed and downside risks appear to be abating.  

While yesterday yielded a positive result, we are still dealing with a low level of volume. The charts show basing, but they are not showing any warnings of an explosive rally. Investors with a 12 to 18 months should be positioning themselves now, rather that attempting to pick an absolute bottom. 

Both the NASD and Dow Jones are showing double bottoms. The Dow particularly looks poised to break above the major moving averages, which could send the average to a belated summer rally. 

Trading ideas might include Jabil Circuit (32.50 to 36.00 or so), SMH (46.5 to 50 to 52) and ARTC (30.08 to 33.25). The market has a more propitious tone. In terms of the Internet, the struggle to develop a viable economic model continues and some winners are emerging. Companies like Expedia, Priceline, and Ebay seem to be making. None of these are advertising dependent. 

July 31, 2001- As we enter a period of virtually no news, very thin volumes, and little likelihood of breakthrough news, get used to very little progress. Other than pockets of strength in healthcare and very selected technology, there is little strength and not much weakness. For GARP meisters, energy service looks most attractive and oversold. For investors, now is the time to build a balanced portfolio and await what could be a very strong fourth quarter.

While it is boring and unprofitable, this is the sign of a bottom carefully tracing itself and waiting for some sign of fundamental hope. Eventually, the Dow will break out of this agonizing trading range. In both cases we will believe the upside is more compelling even though epxectations for August should be modest.  

July 30, 2001- This market lacks confidence, beset by worries of a deeper recession. That recession would be the product of more layoffs and a technology crisis that will be much deeper than pundits forecast. The pessimists believe that only consumer spending is keeping us afloat, and the last leg  of GDP health will be broken when the layoffs reach a critical mass. While the market would buy growth, there is little to be found.

The consumer non-durables have little growth but non-GARP pricing with PEG ratios that are quite high. For instance, Pfizer is expected to grow at 20% but sells at over 30x earnings. KO forecasts growth of 12% with a PE of 30x. Meanwhile, many technology names are producing sequential negative revenue and profit performance. They are not now, by definition, growth stocks. What multiple should be accorded INTC. INTC forecasts growth of 17%, but sells at over 42x forecast eps. However, INTC current performance, and that of most tech, is demonstrating negative sequential growth, so the multiples are even more exaggerated. 

Cyclicals are more reasonably priced and generally respond to Fed easing, but the overwhelming sense interest rates are not going to stem the tech wreck is preventing the market from getting positive because of Fed action. So the market goes up one day and down the next, in a technical split personality. If you notice the way the NASD moving averages are point to the same area, and downside momentum is slowing, you might postulate we are at the base, from which we ultimately rally, if the market gets confident we are not going into a deep recession. 

At this point, GARP predominates in energy, particularly drillers, and gas transmission like Williams and Enron, and selected companies like Tyco (TYC) and Boeing (BA), and lower quality credit card issuers like Providian. The drillers have been driven down because of price concerns, but an economic recovery would solve those issues. 

July 27, 2001- For the second day in a row, the market shrugged off revolting news from techland (HP and JDSU), more layoffs, and rallied to close near the highs. It would appear the 1950 area has shown some support and the chips, in particular, showed some strong buying. The selling seems to have run its short term course, as the buying saw accelerated buying. While some of this is short covering, you have to start somewhere. 

July 26, 2001- I do not know whether it was Ralph Acampora's gloomy forecast or Rubin and Volcker testimony which might have contained some optimism, or just the generally contrarian nature of the market, but yesterday we rallied on higher volume. This happened when the charts were at their most negative. I fail to see green lights suggesting we must buy now either on a fundamental or technical basis. Investors with new money (Is that an oxymoron?) will begin accumulation. They will also not ignore technology, but they will focus on the names with strong new products and pristine balance sheets. Marginal players will continue to suffer in both the market for stocks and the market for product. 

Additionally, investors will be looking at financials, retailing, and consumer cyclicals like autos. Consumer non-durables should be underweighted because this economy will ultimately recover, and defensive areas will continue to underperform. 

It is possible we are making a stand at approximately the 50% retracement area.

Is this the start of a double bottom? 

July 25, 2001- While I have been suggesting that patient investors should accumulate into this seasonally very weak period, because Fed action will ultimately take hold and the tech well will not always be dry, I believe an investor looking to time entry should consider these facts. I warn you they are not pretty. First, all the moving averages are pointing down. Second, the NASD broke below the hugely important breakout level around 1970. There is not sense of a capitulation low with rising volume and extreme put/call levels. Actually, volume levels are low and put/call levels are not in the extreme levels around 1. 

We are in a seasonally weak period for markets and for technology, which is the principal thorn in the market's side. You have a recurring pattern of weakness in August, with a jump in September, and a low established in mid October, followed by a brisk rally in the fourth quarter continuing into the new year. If the market is a discounting mechanism looking into the future 6 to 9 months and the economy indeed will not genuinely improve until '02, then an October nadir would be somewhat plausible. 

Every recession/ bear market has radical imbalances to deal with. Banking crisis, international currency crisis, debt market crisis, etc. We now have radical inventory and demand problems in technology. It is so radical that the weaker players may not survive. It is also likely that the bigger and financially more fit players will win on the rebound, because buyers do not to buy from any organization teetering on the brink of bankruptcy. Those with a serious product edge and pristine balance sheet can be huge winners approaching '02. 

Given the technology laden nature of this index, a retest may be in the card. The swing rule implies down towards the April lows. 

July 24, 2001- Based on the last three months, we are experiencing one of the worst periods for trading in decades. The sideways patterns in the Dow and the NASD performing like a snake wrapped around a horizontal pole are part of the problem. The other issue is the market's tendency to go up one day and down the next, with no real progress in either direction. The market and traders have lost confidence. The bear market is over 16 months vs and average of 10 months. We have not rallied in the face of major Fed rates cuts. Inventory levels are adjusting and staffing levels are being reduced. Oil prices have dropped along with other commodities. 

Having said it is bad for traders, is it better for investors? With a sufficient time horizon, the answer is yes. However, there must be a concern that many positives are being ignored. Is this a buying opportunity or is their something more ominous in the business backdrop?  Part of this may be the result of result of confusion about technology.  We have gone from a widely accepted perception of a secular boom, super growth cycle of biblical proportions (where virtually any price is reasonable) to a cyclical decline, where so-called growth stocks are suffering sequential revenue losses of over 30% and earnings reductions of greater proportions. The issue becomes then what is a proper valuation for a growth cyclical and when will there be something for an investor to view positively as he looks out over the next six months. 

The best investors appear to see now is that we have absorbed most of the damage and the rate of deterioration is slowing and we are basing at a diminished level. It would be rare for a new bull leg to be initiated in August and we probably will bumble around until the fourth quarter. In the meantime, investors with a sufficient time horizon can accumulate great names at reasonable prices. 

July 23, 2001- Let's talk good news. We are holding around support and terrible news is not creating panic selling. Sentiment is terrible and cash levels could launch a rally. As we proceed into the future, the earnings comparisons will become easier, and growth will be calculated off depressed levels. Eventually, lower rates will spark renewed activity in the old economy, which should open up corporate budgets for IT spending, which could get the ball rolling. More applications for broadband in rich media, should accelerate telecommunications spending, as well. 

Having said, we enter the dog days of summer, which is a low volume period, with traders and money managers on vacation. News can have an undue influence on trading, which it will not take much volume to move the markets. 

For now, while we do get violent rallies in technology, they often quickly fade and downtrends get reestablished. We need some news and we need some volume coming off support. Beware the many headfakes. Financials and consumer cyclicals may be a safer place for now. 

July 20, 2001- The spate of warnings about the third quarter is going to spook the markets today, judging from the futures. We are establishing a strong up and strong down day pattern as we struggle around the NASD key support levels, which also is the 50% retracement level of the violent rally off the NASD lows. We also have an emerging pennant formation with down days showing lighter volume. This is a pattern that can resolve to the upside, unless it takes too long to establish. Specifically, there is a tendency for a pennant, that takes over 8 weeks to form, to resolve to the downside. So, not only are we poised around support as the news worsens, but we are finding the retracement duration is getting sufficiently lengthy that upside resolution is getting dubious, but not out of the question. 

This market has absorbed awful news, pushed out expectations of a turnaround, dealt with the valuation issues, and begun the process of identifying those who have shown business and price strength through the trough. While the market puts in this bottom, value stocks appear the place to hide. GM, BAC, TYC, FTU, etc. are stocks that could provide better sleep than trying to call a bottom on a high beta tech stock. 

The fact that the index is living under all its major moving averages is not a positive in reconciling this emerging chart pattern.

There is a head and shoulders bottom with this as the index rises about the 150 and 200 day moving average. 

July 19, 2001- More disappointments and warnings, and revenues adversely impacted by domestic and global weakness and the strong US dollar. We are starting to see relative strength in the last few days as investors "push out" their expectations for a recovery. Greenspan's testimony was extremely wary of suggesting any imminent change in the weakness. The best he could say was that the pace of deterioration was slowing. 

We have a real conundrum. Technology is worse than expected and not priced to accommodate revenue declines. As the NASD approaches key support around 1950, it is critical that we hold. Otherwise, a retest of the lows could ensue. Banks, some cyclicals, and now, healthcare, may provide relative safety in this more hostile environment. 

While the NASD is poised for another test, the Dow continues almost three years of nothing. 

May 11, 2001- The market rolled over and followed its failure at NASD 2200 to the downside. This upgrade juiced the market for a while. Short term technical considerations, which were pointing to a retracement anyway, overwhelmed a Morgan Stanley chip equipment buy recommendation. Any individual is going to be hard pressed to swim against the tides of unforseen forces. 

Note the mini-double top and a break of the neckline. 

This is some serious overhead resistance and the index looks irresolute. 

May 10, 2001- We appear to be succumbing to the news and the market is unwilling to advance into the face of no real turnaround signs. So be it. 

This is the ultimate sideways pattern.

May 9, 2001- CSCO beat their revised estimates, but growth year over year and sequentially were down, with the same prospects for the this current quarter. In this "tar and feather with the same brush" market, this news may unnerve a NASD that appears to being losing momentum at the 2200 hurdle. As the market has recovered since the April lows, the forward progress has only slowed the advance intraday. Normally, between 10:30 AM and 2:00 PM, the market would find an intraday low, embolden some bears, and shake off some hesitant bulls, and then resume its march up. 

I am concerned that bellweather CSCO may assume larger significance and create a wall too high to scale. The markets may be getting ahead of the turnaround, and blind to the bad news which shows no sign of stopping. While we could turn around after a sour open, I suspect we may have to go back into what appears to be an impending trading range which might be 1975 to 2200 or 1800 to 2400. 

One final point. The huge majority of stock market gains occur in the September to April timeframe, with the balance of the year being extremely unrewarding. 

The Dow is stalling again at the top of long term trading range. We may need more genuine flashes of stability and turnaround to break above 11,000.

The SPX mirrors the NASD and is stuck at the level that marked a critical breakdown level. 

May 8, 2001- 9:10 AM- Upgrade of Cisco by MWD has put a positive spin to the market. Additionally, economic data continues to suggest that the Fed must continue its aggressive rate reductions, and possibly encourage the European Central Bank to do the same. 

I am a little concerned about this mini-double top. I would like to see us punch through that are of congestion, unequivocally and on higher volume. If we lose our way, technical traders will lose heart and the index may retreat back.

The pause that refreshes, or an overbought market that cannot make up its mind, and is worried about the depth of the economic despair. It is our sense that last week's pullback relieved some euphoria, and today was just a low volume give back of some of Friday's strong action. 

While counterintuitive, stocks manytimes will rally, when their results are showing weakness. Because of lower rates the market anticipates the turnaround. Generally, at that point valuations have been adjusted to reflect the bad news, and fear has taken over. At the same time, prices have not reflected an eventual turnaround. 

However, the discounting mechanism of the market is ignored by many analysts, who react to the news, and lack vision of the future. It is almost as if analysts have been instructed to ignore charts, ignore the effects of Fed action, historical price relationships, and focus solely on the news. As such, they get you in near the top and out near the bottom. 

May 7, 2001- The futures are suggesting a soft opening, but that does not dissuade from the notion we are trending to 2400 and high beta techs are leading the way. 

The jobs numbers scared the futures markets. When the White House annouced at 10:00 AM that the first quarter GDP would probably have to revised downward, the market began to rally. This double barrel bad news must have underscored that the Fed could not be finished. The vital breadth signs were positive. We continue to believe the 2400 is a reasonable target before the fundamentals must provide more upside impetus. 

11,000 looms large on the horizon. 

May 4, 2001- Jobs numbers showed serious job losses. This a lagging consequence of the Fed choking off the money supply and keeping rates at a hugely restrictive relationship to inflation. This, in turn, is a consequence of the Fed flooding money supply in anticipation of potentially dire consequences of Y2K. In other words, these difficult straits were negotiated by crashing the boats off every available boulder and rock. This ham-handed leadership follows by just two years the Asian Currency Crisis, which was allowed to spin out of control. Should we talk about Greenspan attempt to pick fair value for the markets? There are leads and lags to Fed policy, so we are getting the negatives of the restrictive policy, so the benefits of lower rates will take time. Additionally, much has been made of growth in money supply recently. This is just money being parked as the last waves of scared investors retreated to cash. 

While the Dow is feeling the gravitational pull after failing to scale the pinnacle, the NASD turned tail and ran back into its hole. The 2175 for the NASD did not hold and appears we may need to retest 1975. As we have recently said, the possibility of a trading range waiting for improving fundamentals, is a reasonable scenario. This would balance the conflicting forces of declining business results vis a vis lower interest rates.  

I am concerned that the breakout level was broken on a quick retreat. 

May 3, 2001-  8:25 AM- The futures are very weak this morning. However, the pattern this week and in many rising markets, is to show early weakness with low volume, followed by stability and then gradual upward momentum. The break above 2175 suggests we are going higher, despite early weakness. I think the next hurdle is 2375 or so. There, the equities may be just too far out in front of the fundamentals.

The DJIA was thwarted again by the apparent lack of oxygen at the 11,000 level, while the NASD broke through the 2175 area and looks strong. Energy was very weak as inventory levels were far higher than estimated. The prime mover in the NASD was the old Internet and net related names that had been trashed. Akamai was up 26%. Exodus was up 17%. Foundry Networks was up 16.6%. Brocade was up 16%. You get the idea. While there is undoubtedly some short covering, these stocks are showing near vertical on-balance volume, which is normally a strong precondition for continued accumulation.

Many of these of old "hot stocks"are showing strong patterns with good bases, building volume and broken downtrends. Brocade is just one example. 

Brocade and many NASD charts are coming back, breaking the 50 day moving average and have some room to run before big overhead. Meanwhile, the DJIA is getting agraphobia. 

May 2, 2001- The NASD showed some early weakness and slowly gathered strength, closing at the day's highs. This shows there is not much selling left over in the system. The bias is to the upside. Don't tell anybody, but the Internet stocks are moving, particularly the likes of AOL and Ebay, which have proven their business case. 

The DJIA vaulted the 10,800 area and now faces even more formidable resistance at the 11,000 level. 

1300 for the SPX looks like the next level. 

May 1, 2001- We got very close to the recent highs and retreated thereafter. Likewise, the DJIA started strong and went negative with financials leading the weakness. It is discouraging we could not continue our recovery. More weakness tomorrow, might suggest a retest of the '01 lows. This retreat from the highs did not appear warranted by any news.

It is not illogical for the market to pause, establish a trading range between say 1970 and 2170 and await improving news from the fundamental side. Beware, however, the bulk of the analysts will be very late in their positive calls. Jonathan Joseph of SSB called the chip top and now is calling the chips a buy. 

 The DJIA retreated off the tricky 10,800 area, which a been near the high of an almost two year trading range. 

April 30, 2001- Strong day, particularly for a Friday. The NASD appears poised to retest the recent highs and if successful, move on to the 2400 area. Meanwhile, the DJIA looks poised to move to the 11000 area, which has been a serious resistance level before. 

April 27, 2001- A brief word about weekends. They make trading on Friday and Monday dicey. Traders close positions leading into a weekend and reopen on Mondays. Squaring trading positions can impact trading particularly as volume subsides in the afternoon. When the market was in freefall, Friday's were most always down. Shorts were confident holding positions into the weekend, while "long" traders were anxious to exit. The combination led to some nasty Friday's. Some of this action would reverse on Monday. Another feature is that while traders are active on Friday afternoon, investors generally will have made peace with their positions. 

Since the market got oversold, Friday's have been better. It would appear shorts were covering and longs were willing to sustain for the weekend. Whatever, this intraday gaming has been a confounding factor that can vitiate reading normally effective chart patterns.  

The old economy ruled the roost (particularly energy), while technology was hurt by warnings from the Owens Corning (GLW). I was discouraged by the trading in techs and the NASD, which is about 65% of the composite index, much more if you focus on the NASD 100. The early stage cyclicals, as economic timing would dictate, are the strongest performers, with non-bank financials holding up pretty well. Equally, the consumer non-durables and other defensive categories have been retreating, also related to economic timing.

We need some follow-through. Slipping below the 50 day moving average and closing below 1970 are not positive prospects. Clearly, the market is mediating between lower interest rates on the positive side, and continued warnings, earnings shortfalls, sequential revenue declines, and horrendous book to bill ratios, on the other hand.  

Meanwhile the DJIA is powering to the top of its range. Its cyclical components are moving the ball. 

April 26, 2001- This would appear to have been a classic four day pullback which met support and held and then began to rally. This occurred in the face of downgrades. We should get, at a minimum, a rally up to the 2200 range. I believe last week's action was strong enough,  breadth wise, to warrant optimism we can actually approach the 2400 range. Still beware a break below 1970 (on a closing basis) because it could suggest a retest of the lows. Since we have had more than enough time to digest the new reality and the Fed is not done, I think we have put in the lows, unless we are entering a virtual nuclear freeze. 

April 25, 2001- We would like to see a low volume inside day (trading range inside the prior day) to suggest this was just a pullback. A higher volume break and close below 1970 would imply more downside action, and, in the case of may tech issues, a test of the lows. The size of the moves in high beta stocks, both and up and down, has been the breathtaking. This was eventuated by short-covering, excess cash deployment, etc. The bulls and bears are clearly in a pitched battle, but ultimately, if history is any guide, be resolved in the favor of the bulls, but not without more angst.

Again we retreated on low volume and approach the support area of 1970 to 2000. Markets do not move in straight lines, so this pullback is normal and good. However, fundamental improvement may be too far in the future to cause a huge rally much beyond the 2400 area. 

April 24, 2001- Unless we close below 1970 on the NASD, the most likely estimate is that this is a pullback or correction of the huge move off the bottom. If we close below 1970, then this was a big bear trap. However, volume is low on the pullback and probably we could finish letting some air out in a day or so. Look for a low volume inside day, and an open above the prior close to show this pullback is modest, and we can take a shot at 2400.

The short term looks like a pullback to the breakout level.

The next chart looks more like a bounce in a severe downtrend. Another position could be that this is just this is just another bear trap, that techs are still overvalued, and prices got ahead of still deteriorating fundamentals. I am taking a more sanquine view, but it will not be long until we know which it is- bear trap or pullback in a new minted bull market.  

April 23, 2001- A reasonably sharp but orderly pullback after recent monstrous moves, possibly aggravated by expiration day. I am not concerned. It is possible we could pullback to the 1970 breakout point, or just reverse today's actions on Monday. Despite the possible pullback, which is logical given the over 25% move off the bottom, the underlying technicals are positive, particularly in the early stage cyclicals and financials. Chips also appear on the mend.

The troubling issues surround big tech, where, despite major price surgery, competitive issues abound, and these stocks are not cheap. For every Intel there is an AMD. For every Oracle, there is a BMCS, a Progress, etc. etc. For every DELL, there is a CPQ nipping at their heels. For every MSFT, there are free Office Suites from SUNW. I can go on, but these are highly competitive verticals with valuations that are rich by GARP standards. The same can be said in the telcom area. Here, business models are worthy of high levels of sketicism because of all the alternatives, the overcapacity, and lack of pricing power in mainstream voice markets. Caution is advisable, as is avoiding any serious overweighting in technology.

In technology, there are no safe havens, and off the huge bounce, caution is required. Having said that, the chips have some inexpensive names that should be considered on a pullback, like VSH, CY, and ATML.

April 20, 2001- 7:55 AM- Goldman and SSB are upgrading Microsoft, now that it is extended and almost 60% above its lows. One recommendation is from Rick Sherlund who is considered the axe on the stock. Sun is upgraded as well, only 33% off its lows. These two small examples show the extent to which Wall Street is comprised of momentum players, not investors. They, for the most part, are weathermen telling what is going right now. Their predictive powers must seriously be called into question. 

Well, breadth was not as hot as the averages, but let's not get too picky. Let's take a close look at the NASD. MSFT announced they beat the earnings estimates and were at the top of the revenue estimate range. First, the NASD broke the downtrend line on high volume. This is important and may move the next overhead higher to the 2270 area, noted by the yellow line. The second NASD chart looks at a one third retracement from the top of the downtrend that was broken. These two charts would suggest an upside target in the 2272 to 2400 before we are overbougth, extended and maybe too far in front of the fundamentals. A pullback to the 1970 area from the retracement high and then a summer rally appears to be a reasonable scenario. Fundamentals analysts and investors, however, hopefully have been buying financials and early stage cyclicals (which include chips) for a long term recovery.

Here is a head and shoulders bottom, which can be quite powerful. While it is counterintuitive for the market's to rally in bad times on bad news, it is the way of the market, providing the bad news is in the price. Apparently, the discounting was done. While this is fun, expect we will get extended and need to pull back and test that neckline of the H & S. 

Meanwhile the DJIA has hurdled the moving averages and could approach 11000 on this move. 

April 19, 2001- I will say nothing nasty about Alan Greenspan for a least a week. It may be belated, and still too little but we are moving in the right direction, which would be to get the Fed Funds below the 2 year treasury. There are some mild signs of stabilizing on the downside in technology. Bottoms can be rough, volatile, emotional, and decidedly non-linear. 

We broke above resistance at 1970 and did it with tremendous volume and breadth. This normally suggests more upside action which could be fueled by short covering, sideline cash, and greed. As we have been saying, a move to the 2200 looks like the next hurdle for the NASD. The NASD has formed a Head and Shoulders Bottom and broke the neckline and the Fed dropped intermeeting by 50 basis point. We have sideline cash and negative sentiment. We could go higher than the next hurdle level of 2200, but we may need a bad news pullback to the 1970 level. 

Meanwhile, early stage cyclicals (including some chip makes like CY) and financials are the horses to ride, with consumer non-durables the group to be avoided. Biotecs are strong and dance to their own drummer. 

April 18, 2001- The positive tone and price performance suggests our oversold bounce could continue but first the NASD must scale the 1970 resistance area. Then, it could rise to 2200. Do not expect straight line movement, all clear signals, or even good news. Market's make judgments about future earning and revenues. Tech stocks were all lumped together on the way down and will probably be lumped together in an initial rally. Only with time will investors discern the new environment, the new competitive dynamics, and the dramatically reduced financial health of the buyers of enabling technology. Much of technology's growth is traceable to the health of the Internet, which, to a material extent, was a product of generous/liberal capital markets. Much of venture capital investments were poured into equipment and software purchases. Now the vc's are in hibernation. The consequence of this will be to retard a rapid snapback rally in financial fortunes. 

So, while the market can rally, investors must remain focused on equity values not getting too far out in front of an uncertain future.  

Cisco's extremely negative news was not enough to destroy today's action. We got a good turnaround and breadth was pretty good. Additionally, some of Cisco's news, their protestations to the contrary, are specific to the company. Additionally, valuation is still rich.

April 17, 2001- Many techs have done a one-third retracement and failed. The Cisco news was worse than expected and the inventory writedown, basically took away three years of earnings. Cisco did not make money after adjustments. Rather, they lost big. If, on the other hand, we can rally off this news, we could reasonably conclude the market has discounted a good amount of the bad news. 

We had a major tech downgrade this morning, which had a bad effect on an overbought market going into some overhead. The NASD has to close above 1970 before we can get any confidence in a 2200 target. Cisco sad announcements after the bell could cause the market some indigestion. This will test whether the bad news is in the stocks.  

10,400 represents some formidable overhead for the DJIA.

April 16, 2001- We have been saying for some time that the market is oversold, the Fed is dropping rates, valuations are better, and sentiment is negative. Last week, we got our oversold rally. Now the question is how far can this rally take us, and is this the start of the end of the bear market? That question has a short term and long term version. 

Clearly, the bear market has achieved a major markdown in prices and has existed for a healthy one year plus, exceeding the average bear market by a matter of months. Additionally, it would be historically unprecedented for the Fed actions not to turn the market and break the downtrend. Longer term, we are in that process of finishing correction of the excesses and beginning a new bull market. 

The short term issue is not as clear. For the NASD, 1970 is the first line of resistance with the next line being 2200. For the DJIA, real resistance comes in at 10,300 to 10,400. The quality of the trading in the short term must be measured by volume, breadth, and closes at the top of the day's trading range. Also, there has to be some sign the fundamentals are showing signs of becoming more benign. The charts will show accumulation generally before tech "flash reports" are showing hopeful signs. Once the news is out, the prices will have achieved a major portion of their gains.  

Investors will start buying and have been buying without shooting the whole roll. Technically, it would be natural to run up almost to 2200 and pullback. If that does happen, we may get a retest of the lows. If we do break to 2200 (which necessitates breaking 1970 first), we will just pull back to the breakout. 

The only reason you would not buy now is if you believe we are entering the economic and technological equivalent of a nuclear freeze. While I think technology has serious issues (both valuation and its own market and competitive dynamics) market weightings in tech (say about 18%) should be maintained along with overweightings in financials, and early stage cyclicals and consumer cyclicals. Underweighting in consumer non-durables is advisable. 

April 12, 2001- We got the 80 points of easy action in the NASD and then hit the fade button. Remember, we are in the sell the rally mode, and clearly, selling picked up and a number of techs finished on the low end of the day's range, typcially a sign of flagging momentum. We may need some months to do this base building, with violent rallies and retests, but no real breakout. The base building may be as frustrating as the bull market was unprecedented and the bear market was destructive.  

The DJIA may be pullback to the breakout level. Typically, lower interest rates favor many of the components of the Dow, particularly the cyclicals and financials. At the same time, normally, the consumer non-durables fade. We continue to believe this historical pattern will reassert itself. However, if you see too many signs, it will be too late. The market will have already run up. 

April 11, 2001- Good volume, breadth, great price action and a sense the market good mount a very good countertrend reversal. Even stocks delivering bad news (CY and MOT) had positive price. 1970 on the NASD and 10,300 could be troublesome overhead.   

We have maybe 80 points of easy movement before this rally starts to hit overhead resistance and downward pointing moving averages. Jonathan Joseph of SSB called the chip top and today he went positive on the group, but on the basis that it could not get any worse. 

10,284 is the 50 day moving average and some overhead that could repulse this jump. But the double bottom on the .DJIA is truly impressive and well formed. Additionally, the cyclical and financial elements of the average should benefit from Fed easing. 

April 10, 2001- Pretty good reversal to the positive as the trading day proceeded. 

Double bottom preceding a rally into overhead? With all the analysts now firmly in the manic depressive state, have we seen the bottom? Can perceptions be any worse? Is the Fed going to do an interim rate drop? Most of these questions can be answered in the market's favor. However, the issue of fair value and fundamentals is far more fuzzy, which is why I suspect this is an oversold rally into overhead, rather than the start of a massive long term buying opportunity. On the other hand, investors with cash and a long term time horizon should be deploying a portion of that investable balance now into financials, consumer cyclicals, and a market weighting into tech, with some emphasis on the relative value areas, which might include a CPQ or an AMD, and some of the chips. 

This also appears to be a double bottom with potential to 10,400 or so. 

April 9, 2001- Friday took some of the gleam off Thursday's short covering rally. We do have the cash. We are oversold. The Fed is lowering rates. However, the specter or reality of recession is all too real as warnings and negative commentary flow out like an erupting volcano. The financials are beset by fears of impending loan losses, loss of corporate finance fees, and more. Techs are mired in a downward spiral, with major job cuts. Do people with imminent possibility of losing their jobs, and who have amassed credit card debt borne of spending unrealized gains on unvested options, spend money. Well, we are in the early innings of people adjusting their standard of living to the worsening economic backdrop.

I need to state that technology and financials, are not trading at valuations consistent with other bear market lows. There appears to be an overwhelming sense that the E is going to be lower than forecasts and that rate reductions cannot, per se, solve the overcapacity, inventory overhang, and crashing demand issues in tech. 

Until the downtrends lines and channels are broken we will stay mired in the bear market. This could consist of breaking a downtrend, a major moving average, or a material break above next resistance. Otherwise, you are picking a bottom, without any technical confirmation. Doing that on the NASD is playing craps. We need an amelioration in business conditions, and some technical sign of accumulation and commitment. 

This NASD chart depicts a 50 day moving average envelope. While we are at the bottom of the channel, we are in a very steep downtrend suggesting rallies are countertrend blips, not reversals. 

April 6, 2001- Jobs numbers were very weak, but wages were up. I believe the wage number is a lagging number and will inevitably dissipate as the job market softens. After the huge day yesterday, it is customary to get some early selling, which, if this rally is real, will give rise to some later buying in the morning. However, it is Friday, and traders may exit. Recently, however, it has been shorts being covered, so Friday's have become stronger.  

This was a strong performance, with the underlying technicals as strong as the averages themselves. Great breadth. However, we did a lesser oversold rally last week and the drumbeat of warnings that evening brought the average crashing down to earth. We have overhead at 1800 which must be breeched. We also have Friday which might also test the market's resolve. Follow through is critical. 

Rallying back to the 50 day moving average would be a huge move. 

April 5, 2001- While the futures are opening strong, and DELL confirmed it would meet lowered earnings estimates, we must see this rally hold through the day. The pattern has been to invite selling and more shorting. We have the "sell the rally" mindset that ultimately must come near bottoms. Typcially, to sense an intermediate bottom, we need to see rising volume and improving breadth, together with negative sentiment, a favorable Fed, and breaking a downtrend or moving average. It is critical that we close near the high, which would imply the rally could continue. I am skeptical of this.   

I would  like to talk about another phenomena of a broader nature. Normally, there are new winners that emerge from bear markets. The old leaders may not reassert themselves. I have great concerns about many of the old leaders in tech. Technology is changing quickly and many of the big names are protecting selling and technical platforms that will prove tough to defend. Cisco, Intel, Microsoft, Sun Micro, Oracle, etc. all have competitive and platform issues. They may still not be cheap enough to take these issues into account. For of these companies, there are functional equivalents at lower prices. Additionally, paradigms are being changed and these names may not be in the vanguard. Another unfortunate piece, is that new ideas will not get the funding to become reality. 

While we are oversold, the market still could not muster a really strong effort. The earnings and associated comments are going to provide stiff headwind. 

April 4, 2001- The market is going through a pricing adjustment, which involves pricing technology as cyclicals. There can be no other cogent explanation at this point. In times past, technology was properly viewed as a cyclical and many had low multiples. Super growth stories like Cisco were still priced with PEG ratios that were well below 1. Today's action was widespread and breadth was incredibly negative. 

You want good news? We are so oversold that a quick rally to 2000 is possible. That's all I can think of for the moment. 

It looks like the next stop could be 9000. Again, this index is super oversold. 

April 3, 2001- The warnings are now too numerous to mention. We are going into the 1600's. By then we should through the worst part of redemptions, warnings, and price markdowns. One other issue that concerns me. Auditors look at stub periods. They have to be looking at inventory turns and receivables agings. I have to think that companies may look to clean up their balance sheets and start writing off some of the dicier items. Is Cisco going to drop a bomb? 

The NAPM was bad but not as bad as people were expecting, so the market reduced the chances of an inter-meeting rate cut, and the prices of equities. As the day wore, the situation in China cast a pall over the market. Any effort at holding 1800 is futile now, and now it looks like 1740 then 1600 or so. We are very oversold, however, so there are reasons why shorting now could prove troublesome. 

Here is a failed countertrend rally. 

 April 2, 2001- A couple of things to post to your refrigerator. Earnings warnings and commentaries, which will be very sobering. Mutual Fund redemption to pay taxes on capital gains distributions. To date, the market has been selling the warnings suggesting the pricing is still not discounted enough. 

There are an amazing number of stocks that have gone nowhere in five years, or have completely round-tripped significant gains, but are still higher than 5 years ago. The gains have been in tech, finance, and healthcare. The underperformance has been in old economy names.  While finance appears fairly valued and appropriate with the Fed easing, tech and consumer non-durables have other issues that affect attractiveness. Specifically, slower growth and valuations are hardly compelling. Finding PEG ratios below one (P/E to Projected sustainable growth of earnings) is difficult in these areas. 

This was a favorable Friday. We are oversold and the Fed is moving in the right direction, albeit slowly. Valuations are better, and some areas are showing some signs of basing. I believe shorting becomes highly risky, even though we are in earnings warnings. We will get a bounce, but I think we need to base and await a real turn in fundamentals before we get any serious, trend reversing, green lights. 

There is little precedent for the market to dive in the face of Fed rate cuts and indications of more to come. Coupled with proposed tax cuts and no inflation, this would constitute a dream scenario in times past. Why not now? I think that investors are communicating several things. Fear, without doubt. Second, that earnings are going to be worse than forecast, revenues may see sequential declines, and that pricing is still not that attractive. Finally, I think investors are communicating they do not believe lower interest rates will help technology, which is beset by cyclicality, inventory overhang, excess capacity, and a complete lack of visibility. The market normally will see changing trends and improving circumstances before techland can break its downtrend. Therefore, for stocks to behave this way, there must be some presumption that the dynamics of techland have changed for the worse and will not turn around this year. 

Eventually, however, there will emerge inevitable old economy winners that will be positively impacted by the Fed and tax cuts. Accumulating banks and early stage cyclicals (transports, retailing, housing, etc.) should eventually work. Technology may prove more resistant to the Fed moves. 

These are terrible, bear market charts. Value players say buy when stocks are historically cheap. Tech player say buy when the stocks are breaking downtrends on volume. These charts and these valuations say stay in cash or buy early stage cyclicals. 

March 29, 2001- See our March 28 commentary for the negative side of the argument, which clearly was in control today. While the Nortel, Palm, and Disney comments should not have been a surprise, and should have been in the price, apparently, that is not the case and we are heading straight for a retest of recent lows. Technology was victimized the most, and gave up most of the recent gains. Chip equipment continues to hold up the best. Coincidentally, it is useful to comment on the inverse correlation between techland and consumer non-durables. Yesterday, amidst the tech carnage, the drugs rallied. Despite their fairly rich valuation, these drug stocks have become the refuge of choice when all else is crashing. Obviously, a recession induced bear market is the stuff of strong performance in consumer non-durables. However, be wary, because any tech rally will fund itself from the proceeds of drug stock sales. 

A break below 1823 would suggest our brief rally is over and next risk down to 1727 and then to 1600 or so. Clearly, yesterday's action suggests the bad news is still not totally priced in. 

 This is the long term trend line from the bear market lows of 1974. Right now, the only area of techland performing OK, which is a proxy for the NASD, is the chip equipment companies. Now they look like they may be creating a mini-double top. The disturbing piece of this is the inability to draw any strength from Fed actions. This implies an undercurrent of problems that will a) take longer than 6 months to work out, and b) valuations that are still rich given the new reality. 

Valuation wise, YHOO still sell at 8x revenues, and over 100x earnings with revenues looking like all upward momentum is lost. Their advertising based model is completely broken. 

SPX 963 for those who believe in the regress to the mean concept. Stocks must necessarily revert to average returns and test trendlines, etc. This Draconian approach suggest more risk, even in the face of Fed cuts.

I think the trendline sits at 8000. 

March 28, 2001- Nortel, Palm, Disney, etc. began the end of the day litany of warnings, job cuts, lack of visibility and so on. This will continue. Again, the issue is not that this is surprising, but whether this deceleration and, in many cases, outright sequential negative results is in the prices of tech equities. Here are the negative arguments. Equities are undergoing an unwinding of overvaluation, a reaction to tech stocks being cyclicals (not super growth stocks), as well as a reaction to sequential negative revenues. Since almost every area of technology has serious inventory overhang and pricing issues, shouldn't these stocks be priced like a housing stock or trucking stock (i.e. no more than 10x to 12x earnings). Sex appeal should not be factored into stock price. Additionally, we never get a V bottom off a bear market and will need to sink back and retest the lows. Therefore, this is just a bear trap and will end in a blizzard of warnings. What ails the tech sector is not resolvable through rate cuts. This argument takes you to 1600 on the NASD.

The good news approach is that the pricing has adjusted to the doomsday view, and our problems in techland will be worked out in several quarters. Since the market is a discounting mechanism, it will anticipate and look beyond current problems and rally off its very oversold conditions. The sequential earning and revenue issue is temporary and technology will resume its leadership role shortly. By the time you know why the stocks are rallying, they will be up 50%. 

I suspect the truth is in the middle. In other words, we are in a countertrend retracement with an upside potential from here to 2200. I think the rally will succumb to the warnings and retest the lows, but ultimately be buoyed by a Fed rate cut and the end of warnings. Additionally, the next several quarters will see businesses reengineering to cut costs, slash inventories, cut prices, etc. This adjustment will ultimately solve the problem. However, be forewarned, some of the market's favorite stocks may not come out of this phase unscathed or ready to resume leadership roles. We believe there is a negative case to be made for CSCO, INTC, MSFT, and SUNW based on both valuations, growth, competition, trends in technology, and intransigence to change.  

This was a good day. Breadth, volume, and other measure were positive. The market seemed to sense consumer confidence was not that bad and the Fed would continue to lower rates, albeit not at a panic pace. 

The overhead starts at around 2070 and gets a little stronger at 2200. The other averages have some clear sailing. All in all, this was an encouraging performance. 

March 27, 2001- Warnings from chips and layoffs offset what appeared to be positive momentum. The Dow and the old economy were very strong. Overall, it would appear the market has some more rally in it. We must continue to watch volume, breadth, and a close at the top of the range to assess sustainability. 

March 26, 2001- Are any of the cutting edge techs reversing trend, setting up a potentially rewarding rebuilding of the great bull march? The short answer is no. However, you can see the extended base in AMAT. Progress is being made, but we do not have an unequivocal "buy and hold" green light. Rather, we appear to have a trading bounce that could be quite rewarding. 

The market overcame the curse of Friday and closed strong, a positive sign that there is some serious strength underpinning this bounce. We would look for more strength. There is more than enough cash, and pessimism to go higher. The Fed is not finished and we could be in a market sweet spot. While it is possible for trading to get ahead of underlying fundamentals, we should get a good trading rally. 

It is becoming apparent that this collapse may be technically overdone. If we are going lower, we will have to go higher first. 

March 23, 2001- The NASD carved out a "key reversal day" and techs closed strong. While this may be short covering, a near-term exhaustion of selling, and some deployment of cash, it is still positive. Tomorrow is Friday (I try to provide unique insights) and if we can rally through the day and close near the high, it may suggest we have a decent short at 2000 and then on to 2250. Along the way, volume and breadth needs to be monitored for vital signs. Daily closes in the bottom of the range suggest weakness. 

If you remember, a month ago we set 1800 as a target. We hit it and bounced off. While we may retest and break that level, it is equally possible we have seen the worst. Care needs to be taken that investors do not go to sleep on a countertrend retracement that gets ahead of the fundamentals. If we get too far too fast, we will need to retrace. So set targets and stop losses and understand we are still negotiating a minefield. New Money Portfolio posted today. 

The Dow Jones Industrials closed well off the lows of the day. 

March 22, 2001- We are getting very oversold, very negative, and loading up with cash. At the same time net flows are turning negative as the last of the buy and holders throw in the towel. The Dow Industrials is now joining the bear action. At this point, we do not see any fundamental good news on the immediate horizon so any rally will be a product of cash, short covering, negative sentiment, etc. sparking a rally into a downtrend. 

Technology was almost half of our growth in the 90's. But the wealth effect, which was a by-product of the tech boom, may have kicked in the balance of our growth. It is critical that monetary and fiscal policy spur the old economy sufficiently to fill the void that technology will not be able to fill until it gets its inventory and overcapacity issues resolved. This will be a two quarter affair, at the least. Order cancellations (not pushouts) are putting sequential revenues into a tailspin. These stocks and the market may not have discounted the news. As we have stated before, growth stocks have sustainable recurring revenues that transcend economic cycles. If they do not meet that simple definition, they are cyclicals, and do not warrant premium multiples.   

This looks like a stop at 1700 for the NASD is not out of the question. Will this be enough? However, some of the storage stocks and the chips are starting to show signs of life. 

9150 or so looks like the next step.

1088 to 975 looks like the spot to target.

March 21, 2001- Unfortunately, Monday's constructive action was more about reversing Friday's collapse than the start of mini-double bottom to start a rally back to overhead. Greenspan did not want to appear to be influencing the market. I guess he means he does not want to appear to be influencing the market positively. Personally, I am not concerned about Greenspan's legacy. I am concerned that he has taken the life out of a productivity led expansion, and recreated the malaise of the 70's. 

The equity market was pricing in 75 basis points, even if the futures were pricing in 50 basis points. However, there are a couple of positives that might prefigure a trading rally, but not a trend reversal... not yet anyway.  First, the market's are oversold. The Fed is lowering rates. Sentiment is getting negative, and headlines are screaming about the Bear Market. The negatives are the tape and the fundamentals, both the underlying business and the valuations. My guess is we will get a rally borne of short covering, and deployment of cash levels, but we will still have to test the lows. I also believe the base building, once a bottom is established, will take many months.

March 20, 2001- We reversed Friday's terrible action, and the inability to attract buyers. Tech even show some signs of making a stand at these oversold levels. A Fed hike may spur a tradable rally in techland, but not a trend reversal. A trend reversal will take time from a technical and a fundamental perspective, but a rally up to the 50 day moving average would be a huge gain. While we may end up going lower, the market feels like it wants to rally. 

A rally back to just the 50 day moving average would constitute a rally over 20%. If, in fact, a rally does begin to unfold, play careful attention to the volume, breadth, trading ranges, and the a close in the top of the range. The bigger the range, the higher the close, the higher the volume, the bigger the breadth, the greater the distance the rally could travel. 

March 19, 2001-  While we are oversold, the Fed will drop rates, and valuations are more reasonable, the market still cannot rally.  Fed Funds futures suggest a 100% of a 50 basis cut tomorrow while a 75 basis point cut stands at over 60%. Since these futures have been surprisingly accurate, it is equally clear the market has already drawn as much bounce as it can from the rumor of rate cuts. The bad news is that unless we get a 75 to 100 basis point drop, the market will not be pleased. However, we are oversold and might get some lukewarm bounce. Clearly, however, the market is saying the lower rates are not going to materially help tech which is in a free fall. 

It is highly significant that Fed rate cuts are not having any salutary effect on the averages. Quite the contrary. Something else is at work. I believe that tech problems do not resolve with lower rates. Secondly, a huge number of tech stocks are still priced as growth stocks, but they are now being revealed as cyclicals entering a real down phase. We are, therefore, attempting to find a proper price for these equities. Looking at the longer term charts, we can see we still have not worked off all the excesses of the nineties.

Let's put it this way. Technology has finally slipped from the hands of the momentum investors to the growth investors, and ultimately on to value and GARP players who are very reluctant to pick them up because they are not value plays and earnings and growth forecasts are not to be trusted. 

WE have previously stated a target of 1800 t0 1600 on the NASD and 9700 to 9800 on the DJIA. With the inability to rally in the face of a Fed rate cuts you have to wonder whether these targets, so pessimistic when I first announced them, are actually too optimistic.

Business conditions are deteriorating faster than the Fed can lower rates. It is Friday which is not normally the day to start an oversold rally. While everyone keeps talking about an imminent bottom, they are not talking about how long the bottoming process will take. A one year bear market, with no visible signs of positive fundamental changes, and no technical signs of a bottom, will not get resolved in V. So be patient and do not pick a bottom, just because you are tired of waiting. 

March 15, 2001- 8:45 AM It would appear the Japanese Bank story was a bit overdone and the market is oversold. A bounce here is probably due as bargain hunters step up to average down. Be well aware that the NASD can rally, there will be no V bottom. There is no technical or fundamental reason to make that case. We expect a bottoming process bounded by 1600 to 1800 on NASD downside and 2200 to 2400 on the upside until the moving averages start to flatten and then the 10 day and 50 day start a turn up. There will be tradable rallies followed by selling. Meanwhile, the early stage cyclicals will eventually react favorably to the Fed.  

Are investors connecting the 12 year bear market and recession in Japan with our prospects. Today's market, in no small way, seemed to be drawing the parallel. However, there are serious differences. The Japanese banking system, under a strict accounting methodology, is bankrupt. Our banking system is reasonably healthy, and our capital markets, while weakened, are still viable. As such, we still have the ability to foster and fund new ideas, even though we are not as welcoming as we were when we created this rampant overbought tech market. 

The second difference is that the Japanese economy has lost any inventive, risk taking element and suffers from governmental and business sclerosis. The world is moving so fast that the Japanese business monolith simply cannot catch up. 

Our problem is not Japan's problem. Rather it is a restrictive Fed policy and overhang from tech binge. The Fed can help. It has plenty of room to cut rates. We should get tax cuts, even if the Democrats will fight it all the way. Fiscal policy is appropriate. 

Anyway, we are getting close to an oversold near-term bottom and some techs (storage and some chips) bucked the downward trend. We had greed. Now we are having fear. The only question is whether we have enough fear to signal a bottom. 

Is this a mini double bottom that will provoke a rally to 2200? Or is it another setup o rbear trap. 

Much of the Dow's issues revolved around the Japan issues as the money center banks and brokers were blasted on their exposure. 

March 14, 2001- The index futures are trading lock limit down, suggesting yesterday's bounce was of the dead cat variety. It is becoming more clear that the Fed is seriously behind the curve, and the Fed Funds rates could be reduced by 150 basis immediately. While Alan Greenspan and his fellow ghouls fiddle, the Democrats continue to rework a retroactive tax cut into a toothless wonder. The unfortunate thing is that these individuals are guaranteed a pay check, and employment past most mandatory retirement age, Main Street is not protected and the daily drumbeat of layoffs is only going to rise.

At this point, Fed action can help the old economy in the early stage cyclicals (like a GM), but it cannot solve the tech issues, that will be more intractable, and have serious inventory overhang  and overcapacity. When Greenspan and his merry band allowed the Asian Currency Crisis to spin out of control, they gave us a preview of how they will deport themselves.  

Tremendous snap-back rally, with good volume, without a decent Advance/Decline line. In other words, good volume, but lukewarm breadth. As the chart shows below, there are some tech values out there that will survive and even meet some GARP  standards. However, visibility and predictability remain serious issues.  As mentioned, the myth of the consistent growth and acceleration has been exposed. 

2100 t0 2200 will provide overhead resistance. Expecting a V bottom that will burst through resistance is a tough call. 

March 13. 2001- 

Are These Stocks Cheap? 

 Keep in mind that markets hate lack of visibility and negative surprises. Growth stocks do not like sequential negatives, since it destroys the myth of consistent growth.

No place to run, no place to hide. The DJIA broke key support at 10,300, breaking the bottom end of a rather important trading range. Support may have to now test the 9700 to 9800 range. While the relative safe haven of the Dow was destroyed, the NASD is making our 1800 forecast all too close and imminent. At this point, you could even lower the forecast possibility to 1590. Some pundits are saying we must see valuations in tech reach pre-bubble levels. The argument against that is we are experiencing no growth, sequential negatives, and are proving the cyclicality in the business, and, therefore, the low end of historical valuation is where we need to go. Alternatively, the low end of range from the 90's was in the midst of a supercycle. Now, we are going down and that may imply a lower valuation metric. That would, for instance, take Cisco to 10 to 12, but Graham and Dodd would still not buy it. 

We are getting oversold, but there is no reason we will not stay oversold for some time. 

March 12, 2001- We are building some of the pre-conditions for a bottom in the NASD at either 1800 or 2000, however, we do not appear to be doing anything to set the conditions for a trend reversal. Friday's breadth was horrible, and volume was low. We would like to see some climactic, high volume sell-off, but not yet. We are still on the back sliding end of the equation for technology. Sequentially negative revenue trends are being established, which underscore the the cyclicality and still rich valuations in the business of technology and telecommunications. 

While the NASD still bends under the weight of valuations and negative trends, banks, energy, cyclicals, and selected healthcare are doing reasonably well. So, while one market suffers a ravaging at the paws of the bear the Dow has positive areas, which are good hiding places. These areas are benefiting from high cash levels, negative sentiment, lower interest rates, impending Fed action, cheaper valuations, etc. It is, indeed, a bifurcated market, and will probably stay that way for a while until tech has worked off its inventory, excess capacity has been taken up or written off, and some upward momentum in business conditions have been reestablished. Do not, however, hold your breath.  

Here we have a firmly entrenched downtrend, and a firmly entrenched sideways pattern. 

March 9, 2001- 10:15 AM- For a conservative Fed, looking for reasons to continue a highly restrictive monetary policy, today's job numbers were red meat for hawks. Growth does not cause inflation. Lack of investment and lack of productivity does. The Fed is going to create a self-fulfilling stagflation scenario if it does not lower rates fast. The market today is now obsessing on the stagflation scenario which is a disaster for equities. 

Now we have warnings from Intel, job cuts at CSCO. While some game the fact, the bad news is in the stocks, this is just gaming or catching a falling knive. These stocks are under distribution. Bottoms define themselves, they are not picked out of a hat by desperate investors saying enough is enough. 

Old tech was OK, but new tech was blasted again, and the NASD rally attempt is an abject failure. It is clear the money is flowing toward the cyclical/value end of the market. The charts look good in those areas, and the equities have valuations that would not induce choking in the ghosts of fundamental analysts past, like Graham and Dodd. While the Dow powers back to near trading highs, the NASD looks like it is going to challenge an uptrend line dating back to the depths of the 70's malaise. We are back at the bifurcated market. 

March 8, 2001- Yahoo's announcement is not a surprise. They occupy a third place to MSN and AOL which are better positioned for the future. While early stage cyclicals (autos, housing, retailing, regional banks, etc.) are the place to be when the Fed cuts rates, it is not clear where techs stand. I believe that they are marching to their own fundamental drummer, which is not strictly banging the state of the economy, as opposed to the state of tech. The very tepid oversold bounce does not bespeak a return to visible revenue reacceleration. Traders are not going to hang on to this rally if it does not gather some steam. 

 Early stage cyclicals carrying the ball with the DJIA showing some strength, even though the NASD appears to be undergoing a weak bounce the appears incapable of surmounting the daily drumbeat of downgrades and warnings. Yahoo was the latest so it will be difficult to get much past 2400 without some improvement in the fundamentals, which is not imminent. 

On the way to 10,900 to 11,000, which has proven insurmountable in the recent past. 

March 7, 2001- We were oversold, got some short covering, ignored the deteriorating state of tech affaird, circulated the idea that stocks rallying on bad news meant the bad news was in the price, and closed near the bottom half of the day's big trading range. In other words, there appears to be little real conviction behind what is looking like an oversold bounce facing imminent overhead at 2400. Getting there may prove difficult off yesterday's trades. The fiber guys are issuing warnings like cluster bombs, while Dow Jones announces it will miss earnings estimates by well over 50%. 

While one can debate this is the wall of worry all bull market's need, and the market needs to be obsessed with bad news, it is still hard to sanguine in this environment, for the reason that tech earnings could be much worse than current estimates, necessitating some more downward price action. This trend break is disturbing, making lower levels a more likely proposition. I think it is also safe to say that a longer period of underperformance may be in the cards as we adjust to complete suspension of disbelief and market history that was the hallmark of late 90's. 

I think it is also necessary to understand that Wall Street precipitated, underwrote, and fed this frenzy and is to be viewed with skepticism. Wall Street does not make money without M&A, trading volume, IPO's, etc. and it will behoove them to get things rolling with favorable comments, etc. Mark Twain said that anyone who would retain himself as counsel has a fool for a client. Well, anyone who blindly accepts Wall Street Advice should remember they get paid to be perma bulls. Ever wonder why Wall Street is so late with the downgrades and never issue "sells". So, be cautious, and do the old valuation work. 

March 6, 2001- I apologize for delays in posting information to our sites. Network access points have had serious problems, preventing entry to our sites for purposes of editing. Anyway, we absolutely need to see high volumes and good breadth. Short covering in tech can take us to 2400 on the NASD, but beyond that may be difficult. Investors have underestimated the tech debacle, which is borne of Internet problems (a mangled backbone, no profit model, lack of security, no pricing power, etc.) and complete lack of earning visibility. A V bottom if a Hollywood concept, not a Wall Street concept. While we have negative sentiment, the Fed cutting rates, and improving valuations, we are still seeing progressive deterioration in the fundamentals. We now are seeing sequential negatives in revenues, which is incongruous with valuations still lofty. I remain worried. 

March 2, 2001- It is difficult to develop much enthusiasm for yesterday's key reversal, which can be a good sign of a reversal, without specifiying the ultimate size of the retracement or rebound. That is normally a factor of high volume, strong breadth, the degree of negative sentiment, and a deeply oversold position. While some of these suggestions strongly imply the possibility of a rewarding countertrend rally, I remain deeply concerned about the depths of inventory overhang and overcapacity in many areas of tech. 

If the bloom is truly off the tech rose, we will witness sequentially negative comparisons. Since stock prices in the world of tech are not cheap enough to accommodate the real appearance of cyclicality, prices may need to go lower. Equally, the tech area will not turn on Fed action. It will only turn, in a substantive way, on rekindled demand. In turn, the Internet must resolve the lack of a profit model and the network backbone, that is being crush under the weight of traffic and inherent insecurity. 

If this is a bounce, it will have to contend with 2300 and then 2400. Short covering could take it there. However, continuing warnings, such as AMCC and ORCL, make any bounce completely devoid of fundamental fuel.  

February 28, 2001- Gateway's warning and Greenspan's lack of sustenance for rate cut hungry market leave us with little cause for optimism. 

I want to repeat the long term chart of the NASD. My conclusion is that we will head to the 1800 to 2000 as the next stop. Additionally, we may not be looking at a V bottom but a low volume sideways pattern awaiting any signs of life from techland. For the moment, it is just warnings, deceleration, sequential negatives, etc. Additionally, some of the old faithful in techland may get weeded out as competition intensifies and the foundation shifts. As PDA's proliferate, is there any reason DELL should not end up selling at 15x earnings, as opposed to 24.4 times forward earnings. ORCL at 30.6x forward earnings, is hardly cheap. 

This chart is dead in the water. 

February 27, 2001- Recession, a bottomless pit of bad tech news and high valuations, and disturbing chart patterns seem to be suggesting more problems in the NASD. Let's take a look at a 20 year chart. Notice we have broken an important trend-line. Second, notice the death spiral on-balance volume line. While I do not want it to happen, it would appear that we further to go and 2000 to 1800 may be the next stop. While it is possible to argue that there is mutual fund shorter term selling resulting from taxes on cap gains distributions, there are other substantive problems. Prices do not more that far from the fundamentals, and deceleration and negative sequential trends do not support still high pricing in techland. 

Next, we look at the on-balance volume. If the market is regressing to the mean, we may even have to go down and touch the longer term trend-line. This action is occurring even though there is the broad consensus the Fed will continue to lower rates. 

The Dow is the last safe haven, but it is a shelter with no heat or plumbing, and holes in the roof. 

February 26, 2001- More rumors of Fed action, created an oversold rally tinged with short covering. 2400 represents an area of imminent overhead which will test this bounce. 

Getting a substantive rally off this chart could be difficult.

The Dow has been flatlining around the 10,500 area for two years. I suspect this trading range could persist. Bad earnings and warnings seem strong enough to be offsetting earnings concerns.

February 25, 2001- Rumors of an interim Fed rate cut, turned the market around in the latter part of the afternoon. While a technical key reversal day, the weakness in the Dow does underscore the confidence. However, it is unusual in this environment to get a reversal on a Friday, so I would not dismiss it as meaningless. The breadth was negative, and volume was not a knockout. One intrepretation was just short covering in the face of an early Fed cut. Caution is still the watch word. 

February 23, 2001- More warnings, this time from Qualcomm, Sun Micro, and Motorola. While we have the Fed on the positive side, it would appear there is more here than just a cyclical correction that is not simply resolvable with lower interest. It would appear that the market has no visibility relating to a reacceleration in the 6 to 9 month timeframe. However, we are pricing in the mess, and sooner or later we will touch bottom. As we have stated, the 2000 level looks like a target. This is Friday, and I doubt anybody will really step up before a weekend. 

These charts are not radiating buy signals. However, we are getting oversold, and near the point the Fed may have to act. The currency crisis in Turkey and its possible spillover affects may add impetus to early Fed action. Otherwise, this was just another bad day. 

February 22, 2001- Now we can start obsessing about stagflation. The CPI and PPI numbers are suggesting we are suffering stagnation and rising inflation. The last idols of Bull Market of 90's are now officially smashed. Alan Greenspan has been revealed as just another economist (with all that entails) and Bill Clinton was not responsible for the prosperity. They were the last two supposed idols standing.  

Oddly enough, it was not the expansion which created inflation, because, productivity was eating up rising costs. Rather, it has been the slowing, and what undoubtedly will be a slowing in productivity gains that will aggravate the problem. Quite frankly, I believe price increases will not stick in this environment. However, the Fed better not pause in its efforts to drive rates down. This is getting serious, folks, and a profit recession is next. 

We broke the closing low from two months ago and are trading at a two year low. According to MarketHistory.com, markets perform reasonably well over the next year. It is the near term that is worrisome. It still looks like 2000 is in the offing. Ouch!

This average is wrapping itself around its moving average like a snake around a limb. Something has got to give. 

Enough said.   

February 21, 2001- The Advance/Decline Line of the market is positive. This is the mirror opposite of when the tech craze was in full bloom, when the huge advance was telescoped into just the new economy, which is numerically inferior to the old economy. Eventually, the bad A/D line cooked the market's goose. Will the good A/D line ultimately spell a market rally. This is where the critical concept of timing comes in. Most disturbing is the double tops proliferating in the financial stocks. Techs are dreck so this is a cause for great concern. However, retailers are strong and some media. What to do? Keep cash available and wait for the charts to point the direction. 

We broke the neckline at 2400, so a test of the real lows appears in the offing, and we are not far off. There is nothing fundamental to argue we will hold other than that monetary and fiscal policy are on the case. However, these did not cause the collapse in techland and they will not turn it around either. Euphoric funding of every cat and dog to relief itself on a fire hydrant is the real cause. Working that off, and separating the wheat from the chaff is the next phase, since this market and its investors are no longer virgins.  

We appear vulnerable to the 2000 mark as the break below the 200 day moving average is never good news. 

The SPX has obvious risk to 1200. Eerily, this rounded top shows no signs of basing. 

The Dow is holding its own, because defensive categories have performed with relative strength. But here we seem to have another rounded top that simply cannot penetrate overhead. 

February 20, 2001- What is the good news? The Fed, the fact the bad news is in the market, the fact that we undergoing the inventory correction and layoff phase, and that we are longer term oversold. Finally, historically, bear markets end, before the reasons for the bad market are obviously corrected. The bad news is that it is very difficult to figure how long these issues in techland will take to resolve, and when we can start seeing hints of progress. Bear markets normally last 11 months. We are there now. While some would argue that we had such a long bull market, we may have to weather a proportionately longer bear market to work out the excesses. 

I will let the charts be the arbiter of some of these imponderables. This long term chart shows we are the trend-line from the depths of the Iraqi conflict and the 1994 stealth bear market.  

Bad inflation news on the PPI, very lame consumer confidence, more tech issues, our incursion into Iraq, and the fact that it is another Friday approaching a long weekend and you have a formula for disaster. Did I mention safe haven Shering Plough, reporting the Government is concerned about sub standard manufacturing and you conclude an across the board disaster. The good news? We did not take out the increasingly more important 2400 on the NASD.

February 16, 2001- Is now the time to buy? Investors with a longer term time horizon should regard this as a good opportunity. But catching or calling an absolute bottom is more good luck than having a Phi Beta Kappa key in Market Timing. Traders will have a difficult time because the market appears to be tracing a double bottom. The market equally appears to be pricing in the bad news, and looks like it wants to rally. However, yesterday was instructional on that score. CIEN's news lifting all of technology, but the news from DELL and NT has completely replaced the euphoria with lugubriousness across the whole tech spectrum. 

The market looks out 6 to 9 months. However, while CIEN's numbers suggested everything would be alright, the others suggested a malaise and complete lack of visibility, except for job cuts. The market is counterintuitive, in the sense it can start its biggest moves when the situation is most bleak. However, even the market's most steadfast investors, have a hard time holding on in the face of such bad news. Equally, they have a hard time discriminating between the good, the bad, and the ugly. Further, the market is having a hard time rallying the early stage cyclicals, when all the news is negative. 

For the financials and consumer cyclicals, the Fed easing will drive the stocks. Equally, money will flow out of defensive areas. This is happening. The tech area is defying being placed in a box, and it certainly has little in the way of conventional value plays, other than some of the chip equipment stocks, and an AMD, CY, or MU type. The rest is not cheap, and end markets will not respond immediately to Fed action. In other words, traders must be disciplined in techland. Do not look at the news- look at the charts.  Right now, there is little recommend these stocks. 

Ciena got the ball rolling with great earnings, but after the close, DELL, NT, SGP, and HP pushed some cluster bombs out the bomb bay and after hours trading suggest most of the today's tech gains were no more. While the news was very bad, it will be critical that the market be able to show some ability to absorb missed estimates and layoffs, because they could well be in the market. If the market can hold its own on a normally shaky Friday, that will be a big clue that the bad is in the market. 

You can see the tepid rally attempt was already losing momentum before the bad news was released after hours. 

February 15, 2001- It would appear we may have satisfied market players that we have had a successful retest of the lows, that we had a bit of a reversal day and that AMAT rallied on bad news, suggesting the market has discounted the bad news. While I would not bet the ranch, we may have a tradable rally in technology names up into overhead. However, we should also caution that this rally must be accompanied by rising volume and improving breadth for it to sustain. Additionally, it would help if there was some fundamental clue that inventories were being worked off, the Internet was moving to alternative means of revenue gathering, etc. Short covering may get things started, but it will not sustain in the absence of other signs. 

NASD good, DJIA bad. Without news, the NASD took off, but it did not reverse the damage of the previous day. Chip Equipment was particularly strong, but the fact AMAT had sequentially down revenues was not good. There is some sense this was short covering, and an oversold bounce, rather than that the start of something big. On the other hand, if the charts tell you to move in, you should move. We are not yet at that point.  

2601 or so represents the 50 day moving average. A break above that level on rising volume would be a helpful sign. We are also tracing out a double bottom. We'll see.

Speaking of double bottoms, here is a double top in the Dow Jones Industrials. 

This chart is worthy of note, because we did reverse early weakness and close near the highs for the day. February 14, 2001- What's wrong? First, we have a negative savings rate. Second, capital expenditures were 60% tech and telcom, and, it is clear now, we have too much capacity to be worked off without disappointing consequences to earnings. Third, we have a negative savings rates. companies and consumers need to re-liquify and pay down debt, and get skinny. Fiannly, Greenspan did not dance on the head of a needle. He failed miserably. 

Here's why. First, he implied things were not that bad based on improving weather and continuing positive earnings estimates based on IBIS and Zacks, which are based on sell-side analysts. The market does not trust the sell-side one iota, and the weather comment was borderline fatuous. Greenspan communicated the idea there would be no interim cut and that 25 basis points was all this resilient economy needed. Finally, he suggested that productivity gains would continue making slow growth still well capable of producing earnings growth consistent with estimates. Then, he wiggled and waffled on tax cuts, looking like a pandering bureaucrat. 

If there is a positive it is we know the limits of government in all its myriad forms. We know, for instance, that Al Gore did not invent the Internet. We know, for instance, Bill Clinton did not produce the unprecedented era of prosperity. If he did, then presumably he could have stopped this severe downturn, and the resulting layoffs that are just starting. Finally, we now know that Greenspan is not a visionary. Rather, we know he followed the public debt markets, the Fed Funds futures, etc. and he reacted with a two to three month delay. This is like being hit in the head with a frying pan and saying "ouch" three months later. If that is genius, then clearly the definition has changed.   

The gamers and handicappers set the market to rally during the Greenspan speech, but when he said nothing new, the market lost gas, and rolled back down the hill. We are having our NASD retest, and it is ugly. He implied that a 50 basis point drop was not in the cards. The selloff implies, however, that it was in the market. It is tough to say tech is cheap, when growth is decelerating or actually going negative on a quarter over quarter sequential basis. 

This appears to be one more failure to break through the 11,000.

February 13, 2001- The Market (NASD) has Problems! Here's why. I am not convinced that this low volume, principally old economy rally was a big deal. First, the market is rallying in anticipations of salutary remarks by Greenspan tomorrow. Second, Fed action is not going to turn around tech, which suffers not from tight credit or high rates, but rather from excess inventory and capacity. 

The old economy was strong, and it appears cyclicals and defensive areas were the hiding place of choice from the tech carnage. 

February 12, 2001- The Market (NASD) has Problems! Here's why.

We have broken down below the neckline of the breakout and it appears that there is little to stand in the way of the NASD lows. Once again, this market appears in the process of forming a larger bottom. This bear market has lasted 11 months and is now at the average for most bear markets (10 months). On the other hand, the bull market has exceeded any in history (arguably from 1982) and we may need more to correct the excesses. These market by old time Graham and Dodd standards are not cheap overall. 

While the Fed's work is hardly finished, lower rates will have little impact on excess capacity in fiber, pc's, chips, etc. 

February 9, 2001- Another very weak day, as investors saw the dark side of economic slowing, inventory overhang, weak retail sales, and bad technicals. Retailers were particularly weak. Investors are not currently willing to look over the abyss. While inventory overhangs will get worked off into a weakened economy, and the Fed hikes will take affect, there is an apparent sense that these events may be slower to unfold than the market wanted to believe in Janauary. 

If the NASD cannot hold the 2525 range and closes at the bottom of the range again, we may be setting up for a retest of the lows. 

It appears the Dow is going to go back test support around 10,700.

February 8, 2001- This was a day where Cisco's news punished technology even if there business was unconnected to the networker's issues. The NASD managed to stage a modest rally in late trading day, so there is some sense of support in the 2525 range.  However, breaking the 50 day moving average would suggest we may have to test the lows. 

Meanwhile, the DJAI needs to break 11,000 on higher volume to relieve the congestion. I t would appear the average may need to retrace to gather steam for more upward action. 

February 7, 2001- Cisco disappointed for the first time in umpteen quarters. Normally, they beat estimates by a penny. Since Cisco is the holy grail of the NASD, this was a depressing result. However, Cisco problems are as much an issue with router dependent networks and their legacy revenues, than purely the result of a weak economy and financially strapped ISP's. However, there still will be problems for techs to continue rallying without some sense this situation is solving the inventory glut.

As the tech situation continues mired in warnings, we appear ready to test the breakout levels (2600), and expecting a V bottom off that level may be so much fantasy. Again, it would be our estimate that a sideways basing pattern between 2600 and 2950 may be the best we can expect until re-acceleration is more visible to the market. Meanwhile, the market appears more comfortable with early stage cyclicals, with some move to defensive areas as the economy continues to put out weak data. 

February 6, 2001- The market appears more willing to buy old economy names, and less willing to suspend disbelief that technology can quickly reestablish its accelerating revenue trajectory. I suspect we will retest some of the recent breakout levels, but not the lows. The best guess is we may go into a low volume sideways funk for a while and await some positive news that inventory adjustments are taking place.

The NASD is sitting on the 50 day moving average and a break below that level could suggest a move down to 2400. 

February 5, 2001- The market is showing some signs of real weakness in technology. I suspect this is partially the result of mutual fund statements with taxes on distributions even though the funds are in loss positions. This is causing some liquidation to pay taxes. Secondly, the market may be tired of looking over the abyss and wondering if tech weakness is just going to be confined to two quarters, with a re-acceleration in the second half. 

On the plus side, it is a very low volume pullback into support for the NASD to the double bottom neckline. If we break the neckline on rising volume, I would get very concerned. Also, we have the 50 day moving average at 2610 or so. The flip side is the Fed, and the eventual positive impact on equities. 

As we review the possibilities, we could just be having a benign and low volume pullback to support. This last could be part of building a base to await signs the Fed easing and market conditions will allow business conditions to improve. Alternatively, the market could be suggesting it has gone too far too fast and is not believing this economy can reconstitute itself quickly and will need to retest its recent lows. This last scenario may provoke the Fed to move faster lowering rates and embolden politicians to cut taxes faster. For the latter reason, I believe we will not retest the lows, but we may go sideways in a low volume malaise, with little strength in any group.

The DJIA is clearly caught in a trading range. It has come pretty far and is a tad overbought and right in some overhead. 

The SPX has risk back to its 50 day moving average. 

February 2. 2001- The DJIA is looking very strong, while the NASD continues to grapple with the magnitude of the tech situation. Financials were particularly strong, as is typical in this early phase of Fed easing. Early stage cyclicals like retailing and some transportation (also benefiting from softer energy prices) have been under accumulation. 

The NASD appears to have risk back to the 2,650 area. Investors are opening mutual fund statements showing losses, but also showing taxable gains distribution. This could cause some headwinds for techs for a short period. 

Meanwhile, the DJIA appears to be building for a serious move 11,500 aided by Fed easing. Early stage cyclicals and financials are the economic timers dream. Go with it. 

February 1, 2001- While the trend is your friend and "don't fight the Fed" will win in the end, the NASD is showing some difficulty plowing through the warnings. Some of tech's issues are not solved by lower rates, but rather must be achieved by the Internet re-inventing itself in the B2C area and proving that there is some potential for profitable e-commerce, and a willingness to pay something for content. Failing that, no amount of fed action can cure what would then be overcapacity. 

The Fed met the market's expectations so we had a predictable buy the rumor sell the news sell-off. So what? The Fed is not finished, and we will have a fiscal stimulus of some sort. This backdrop is a strong historical positive, and has never failed. We suggest and have been suggesting banks, other finance, and early stage cyclicals, like retailers for out-performance. We would equally suggest defensive areas, including consumer non-durable like beverages and drugs for serious under-performance. 

January 31, 2001- Great day for the DJIA, but very flat for the NASD. Banks were very strong and should stay that way as the Fed loosens the reins. Early stage beneficiaries were in the vanguard. While techs were flattish, they are generally in an uptrend with some clear overhead until the 3000 level. 

The DJIA exploded over the moving averages in a show of the effects of lower rates and impending Fed easing. There should be more to come. 

January 30- Technology showed good strength despite the warnings about the current quarter, and fears about the lack of capital. The anticipation of more Fed action and the fact the bad news is baked int the cake caused the market to overcome early weakness and continue the march to 3000 on the NASD. 

Technology, retailers, and some financials did the heavy lifting. 

January 29- Cisco warning January was surprisingly weak. If this was a surprise to anyone, they must have just returned from a 6 month trip to Pluto. The issue is not what just happenedor what is happening, but what the market collectively can see 6 to 9 months out. While it will be rocky, a reconstituted Internet will regain its footing in the next year and tech sales can reaccelerate. 

The NASD was bombarded with more warnings and signs of weakness in the tech, particularly in communications chips and wireless handsets. However, after a big "air pocket" at the open, the market stabilized and closed up 27 points on the day. Since Friday's normally show the "rats leaving a sinking ship" syndrome, this strength was a real show that the bad news is in the stock and we could be ready to resume our staggering and faltering move to 3000. 

It is also apparent that the old economy is not so compelling that it can do anything more than trade around a flat moving average. The DJIA shows this phenomena perfectly. 

The SPX came back to where it broke out at 1350 (the neckline of a double bottom) and held. 

January 26, 2000- GLW warnings, which were mild, seemed to start the NASD on the road to more pullback and uncertainty. From the lows, we are up over 20% in a month. Therefore, a 5 to 7% correction is completely usual. It would be unusual, however, for the market to truly tank in the face of an accommodative Fed.

However, it would be reasonable that we could see a rotation into early cyclicals and financials, as techs continue to do a retracement of the recent strong rally as the news, most recently from communications chips, thwarts rally attempts.

A reasonable retracement for the NASD would be to the 2600 to 2650 area which would be a 1/3 re-tracement of the January rally. If we breech that level, I would suspect the market is struggling to look beyond the current tech abyss, particularly since the Internet profit model is a work in progress. While the "old economy" is using the Internet to good advantage, the B2C needs to establish that companies can make serious money reengineering their business paradigm.

January 25, 2000- The NASD continues on its way, albeit with weakness in the afternoon. While it still appears we can approach 3000, it is becoming equally clear that it will be s plodding affair from here. Volume and breadth are still pretty good, but weakness in the afternoon diminished the breadth. 

January 24, 2000- A very strong day, which got stronger after the close with CPQ, SEBL, and BRCM coming in with strong results. There continues to be strong technical logic to testing the 3000 level after this little pullback. Tech carried the ball. Financials were also strong based on suspected continuation of Fed easing and Merrill Lynch strong earnings. 

January 23, 2000- A couple of days of pullback with stock like DELL announcing bad news and then finishing to the positive, is starting to underscore that we can probably take a shot at 3000. The NASD break above 50 day moving average on good volume was an excellent sign and retracing back to the level would not be a bad sign if we can close above that level. 

This sideways pattern revolving around 10,500 has persisted for a long time, as the market attempts to resolve the conflicting elements the market. Bad lagging and coincident indicators and disappointing earnings battles to an apparent standoff with the prospects of Fed easing and an economic improvement in the second half. 

January 22, 2000- DELL's warnings are causing angst in the markets, but this will test the proposition that the Fed need to drop rates, and the fact the bad news is in the price will overcome the unsettling news about the last quarter and the next couple of quarters in the world of technology. If the market is, indeed, a discounting mechanism, then we could expect further upside. 

This is a typical Friday exodus of traders and a rotation out of defensive stocks which has been going on for some time. Technology still had a good day, and the NASD is marching toward 3000.

January 19, 2000- MSFT, EBAY, SUNW produced good numbers after the bell on a day when the markets achieved some important and positive technical results. Technically the market appears poised to make further progress, and tech is firmly in gear off very depressed levels. We are not talking new highs, but already the NASD has rallied approximately 20% from its very recent lows. In other words, we have a good year in less than a month. 

The NASD broke a downtrend and the 50 day moving average on brisk volume. 3000 is not a total stretch, and possibly 3250 before the market would require a pullback for a reality check. 

The SPX broke the downtrend line and the 50 day moving average. Volume was tremendous.

This is the one average that was not hurt that much and is not bouncing that much, still being contained under its moving averages. 

January 18, 2000- The market lost much of its early enthusiasm and closed in the lower half of the trading ranges for the main averages. Industrial stocks and drug stocks were weak, while techs across the spectrum were strong, albeit with late session weakness. Late day weakness can be a problem for subsequent days, but the market does seem to have factored in bad news and appears ready to give the techs more upside action. 

While the following charts show the late day loss of buying power, the longer term charts show that both the NASD and SPX pierced the 50 day moving average only to fall back below it. The Dow Industrials still sits below all its major moving averages. While the bulls are massing at the gates, they have not yet pierced it. Breadth indicators are reasonably positive, but the situation is still uncertain. 

January 17, 2000- Great day for the DJIA but uninspired for the NASD, which continues to battle earnings and deteriorating economic data. This will persist, but tech stocks are not collapsing on bad news and some are rallying. It would appear the money flows are positive. Financials were in the vanguard, even though loan provisions may clip earnings. 

January 16, 2000- The charts do not inspire great confidence, and they simply add to the wall of worry created by earning issues, deceleration, tech valuations, etc. However, cash flows are positive, and Friday backslide may just be some traders exiting positions before the long weekend. Again, the markets are struggling between the positives of impending Fed rate cuts, and continuing bad economic and earnings news. 

January 12, 2000- This was a positive day for techs who demonstrating rounded bottoms and double buttons with nicely expanding volume, and a demonstrated ability to deflect bad news and rally anyway. Meanwhile, defensive categories are losing momentum and beginning the sell-off dictated by the history of economic timing. 

January 11, 2000- Semi's are getting rocked with analyst downgrades. YHOO talks down the future amidst advertising problem (which we have been talking about for over a year), so we see the futures again trading at major negative levels. We have the analysts downgrading at the precise time the chart are showing genuine signs of a rounded bottom. I would say that selection is important in the tech area, which is not a monolith. Right, network storage and B2B look OK. 

The big picture. Equities react well to Fed easing, and even this Fed has no coice but to aggressively drop rates. It is always darkest before the dawn so investors should not be scared by horrendous lagging, coincident, and even some leading economic data and corporate announcements. Those bad releases and the fear they engender, are precisely the reasons the market rallies from despair. Markets need a wall of worry to climb, and we have that wall. 

Short term we are still doing an irresolute dance with defensive stepping forward and cyclicals stepping back and then vice versa. Ultimately, economic timing suggest cyclicals and financials will win out and defensive stocks will retreat. 

Techs are forming multiple bottoms. They are starting down and slowing picking up buying at the close. Finishing at the top of the day's trading range is a positive, even in the face of almost universally bad tech announcements. 

Here's a forming double or triple bottom. A break above the 2615 level could set the stage for more upside action. 

These markets are attempting to look over the abyss to the other side. Keep in mind, that while tech hit the wall last March, the manufacturing economy has been in a malaise for almost two years. Higher rates can not be selectively applied by industry, so the rate increase did halt the tech advance, but, at the same time, they took a bad manufacturing backdrop and made it even worse. The good news is these companies are more efficient and if the economy does come back to life, there is considerable operating leverage to exploit. 

January 10, 2000- The market is irresolute, confused, faking right and going left, and generally going nowhere. One day cyclicals, next day defensive, next day some techs, and then back again. With the economy slowing (hear the screeching), many investors find it difficult to do what is counterintuitive, that is, buy financials and early stage cyclicals like retailers, transportation, hotels, advertising, electronics, etc., so they buy defensive stocks. Others find economic timing and the lessons of history compelling, so they buy financials and cyclicals. Growth investors want badly to get back into tech because they think they are washed out, and all the bad news is in the price. Because of the deteriorating economic numbers, other investors look for consistent growth with drugs, beverages, food, supermarkets, utilities etc. So the daily debate goes on. This is not unlike a sailing vessel attempting to tack into strong winds. The boat almost stops before it get the wind at its back.

Other investors are sick of the market and play spread games. Specifically, they attempt to take positions looking at the probable steepening of the yield curve (short the long end of the curve, buy the early maturities), and sell the T-Bonds, and buy the junk end of bonds or even Brady Bonds (sovereign debt of emerging countries denominated in US, backed by treasuries) . These latter moves are generally successful at this stage of the economy.  

At this point, the sector that probably is most vulnerable to the economic backdrop is the defensive area, unless the economy is far weaker than we think, and virtually immune to Fed action. Technology is good for a bounce sometime, that will be tradeable, even if the underlying conditions remain sluggish. 

That said, it may take another 50 basis point move at the Fed's meeting this month to really get this market moving. 

January 9, 2000- 10:35- This is an encouraging followup to the reversal of yesterday in the tech area. While financials are not participating ( a sign of weakness), the rest of the action is positive, with energy and retailing looking good. 

If tech can rally on the heels of weak news, it would indicate that the market is beginning to fully discount the weakness and the deceleration. Yesterday, was a hint of that possibility. Normally, when the Fed starts to drop rates, early stage cyclicals and financials are best, even though their earnings announcement may prove a challenge. So, selected techs, financials, and early stage cyclicals may be the place. Much can be gleaned from today's tech action, and any follow through in the face of warnings.  

The market actually showed some strength by rallying well above its lows and near the top of the day's range, on OK volume. Strength was in the consumer non-durables, and selected technology, particularly chip equipment, network equipment, some B2B, wireless and energy. There was also strength in selected telcom, maybe as a follow up to XOXO completed funding last Thursday, showing that the debt markets may be opening up a little. 

The market is straddling impending fed rate cuts (good for cyclicals and financials), and bad economic data and earnings (good for consumer non-durables, other healthcare and utilities), all the while casting about for companies that can produce great growth, at a great value, and not miss a beat. 

2,300 seems to be an area where a we could attempt to rally. Today's bounce off 2,300 a reversal day, but I would have preferred if we had closed above the Friday close. 

he SPX shows the same type of pattern. 

 The action in the Dow was uninspiring, dragged down by cylicals.

January 8, 2000- The silver lining? The necessity of continuing Fed action to lower rates. In the early 90's the Fed went to the extraordinary level of dropping rates to the underlying inflation rate at 3%. We believe it may be necessary to drop the rates by another 150% from here in conjunctionith fiscal stimulus. While this will eventually allow the market to anticipate better economic days, it will not cure what ails technology, which marches to its own drummer. Technology is influenced far more by its own secular dynamics. 

Specifically, I believe technology is at the mercy of the Internet establishing a profit model for B2B, B2B, and content sites without killing traffic. In other words, e-tailers must raise prices, and content sites must charge for their content. It will take time for the results of this experiment to unfold. In the meantime, tech orders will likely experience a diminished pace, push-outs and cancellations. That is not good for equities.    

Another point is that mutual funds redemptions are on the rise, taking the new funds flows a dubious argument. 

Bank of America started the bad news, then Cisco chimed in with a rumor filled fiasco that may mean nothing. California utilities were downgraded to near junk and the financial community shuttered. Only defensive consumer non-durables were up. Technology was puked out like a bad clam, as more predictions of rapid deceleration continued. Jobs numbers were extremely weak, and yesterday's unemployment claims were way up. 

This is a most unpleasant January effect. We are caught at the confluence of more bad earnings, comps, and warnings and the prospects of more rapid Fed action. Ultimately, the market will have good days where it looks beyond the abyss of our current dire conditions. Today was not one of those days. 

January 5, 2000- There is a big difference between lagging, coincident, and leading indicators. Lagging indicators can unsettle markets for brief periods (hours or days), coincident indicators like comparable store sales can last for days, but it is leading indicators that really move the markets, which are, after all, discounting mechanisms. The best leading indicators for investors, frankly, are the publicly traded markets for commodities, treasuries, corporate bonds (and the spread between corporates and treasuries) and equity markets with particular attention to sector rotation. 

Markets are discounting mechanism of the world 6 to 9 months ahead. Unfortuantely, based on the copious record, analysts use lagging and coincident indicators and seem to get sucked into today's announcements. The reality is, that no matter how counter-intuitive, retailers start to move when comp sales are deteriorating. Banks get purchased when losses rise, etc. Also, the fact that technology is continuing to struggle while autos and home builders, suggest the markets feel cyclicals will come out of the trough, while technology may not be out of the soup in the 6 to 9 month time frame. Perhaps, more rate cuts and a tax cut will change that perception.  

My view is that the bulk of the old economy will continue to derive trading benefits from the rate cut and the growing belief there will be more rate reductions as soon as the next meeting. Transportation, autos, housing, banks, etc. will be the beneficiaries, and some have some room to run, both fundamentally and technically. This move may come at the expense of the consumer non-durables and other defensive categories, which had been bid up as investors sought refuge from the sliding economy. 

Technology, after yesterday's explosion, will get back to individual selection based on earnings, warnings, prospects, etc. Today's action may be just a quick hiccup, or more likely, some still very valid concerns about many elements of technology and underlying valuations. 

Right up to the 50 day moving average and wham..... failure.

January 4, 2000- This morning I made some comments that can only be generously described as "stupid". I said the Fed Funds futures had priced in a 50 basis point cut, to occur sooner than later, but, the equity markets should have been responding positively and they were not. This afternoon, the Fed, completely out of character, dropped the Fed Funds rate by 50 basis points and the Discount Rate by 25 barket for techs, why would they arrest its fall. That sounded rational, but clearly tech had absorbed a cyclical taint, and this surprise move, galvanized a view rate cuts could start to revitalize IT spending. We shall see. 

The Fed will obviously cut rates more and that is probably what the market started to discount. We have been oversold. The quality of this move was very good on the volume and breadth basis. Only defensive areas were negatively impacted, particularly consumer non-durables. 

Today was a 14.2% rise, the highest in history. We still remain well below the 50 day moving average. 

This is a double bottom, but we need to break the downtrend line and the 50 day moving average on volume and breadth.

The Dow exploded above the 10,800 which has been a trouble area, but it was the weakest of the averages, mainly on the weakness in drugs and other consumer non-durables. 

January 3, 2000- 8:50AM- These are not charts that appear ready to rally. There is no key reversal day, no sign of accumulation or a climactic sell-off. The catalyst of a Fed reduction of 50 basis points, maybe by Friday is getting priced into the market and it still collapses. However, looking through the broad averages, you see utilities, reits, consumer non-durables, some financials, RBOC's, and selected early stage cyclicals (housing and retail) doing pretty well. While not under huge accumulation, they are a hiding place. Technology went to valuations that made no sense. So we are correcting valuation excesses and experiencing a tech slow-down at the same time. While the FED will be a catalyst for the old economy, it appears neutered in the face of the "irrational depression". 

Well, so much for the January effect. While I would not preclude one later, it may come from lower levels and only recoup some of the egregious losses in tech. When the NASD was going vertical and reaching fundamental and technical without precedent, I wondered how this would end. Now we going vertical, but in the opposite direction. Since these stocks are experiencing another vertical phase, this time to the downside, there really isn't a fundamental stop, since these stocks still are not cheap. Not only that but they have extremely difficult comparable earnings deal with.

If there was any strength, it was in retail and some old economy. Ultimately, the inevitable Fed rate cuts will continue to move the old names. I am not a big believer in believing that a new year will change leadership, or alter the technical picture that was unfolding in the last period. With that in mind, the old economy will drive the markets, and tech will struggle. 

This is a ten year NASD view, showing that we broke the uptrend line from January, 1994 with a downside 50% retracement pointing to 2000 area as a next resting area. I know you are thinking how could it get any worse. Remember when people were thinking it could not get any better, and we were in a "sweet spot" with a virtuous super-cycle. I mentioned many times that this could get ugly if we regressed to the market's mean performance of 10% or so from what had been 15% for almost the last two decades. We are starting to learn the meaning of "regress to the mean". Today was a low volume affair, implying this was not a climactic end to the selling. 

While the Fed will kick into gear soon, the NASD is more concerned about earnings, warnings, deceleration, and valuations. Dropping rates will not make these names much more attractive in light of IT spending cutbacks.  

It may consist of boring old economy stocks, but it sure looks like a safer place to hang out. This appears to be a retest of recent lows. 

January 2, 2000- 8:00 AM EST- While the end of tax selling and a fresh start mentality, together with available cash, may produce a rally, it would appear there is no catalyst for technology. While markets and sectors of stocks tend to discount 6 to nine months into the future, when it comes to technology as a group, there appears to be enough deceleration, disappointment, overvaluation, etc. to keep tech in a prostrate state, or, in technical terms, mired in a bottoming process awaiting a pickup or re-acceleration in business. 

We are big believers in waves that can last from weeks to months, or longer. Specifically, based on the economic backdrop, the probable trend in interest rates, and individual industry dynamics, stocks move quickly to achieve technical targets and appropriate valuations. Based on waves, "buy and hold" is a strategy to round-trip stocks and live in trading ranges. Unless an industry is involved with a super-cycle (as tech experienced in the 90's), those targets provide good returns in short periods, but are not space shots.  Once targets are achieved, money can be redeployed.

As of this moment, the short term seems to favor certain January effect stocks (CCRD, ISSI, EMMS) are some names, retailers (HD, COST), and some smaller financials (SVRN). I would not focus on the inevitability of a tech rally. I would wait for the charts to show true underlying accumulation. That could take a while.

On final point. If the first five trading days are negative, the market normally has a bad year. Bear market average 10 months and we are getting close. On the other hand, given the excessive some elements of the market achieved, the move to fundamental fair value (an elusive concept in the new economy) and technical support may take more time. In that time, it appears traditional valuation metrics will take hold.   

It would appear that tax selling was not complete, and when more selling came in, traders playing today for a commencement of the January effect, decided to get out of town. While breadth was almost neutral, there were big losses in tech, almost across the board. While this is a discouraging close to a discouraging year, I remain focused on the positives including the Fed, poor sentiment, available cash, and and cash flow. Speaking of cash flow, it is not in the home run category, however, there is not a big calendar of IPO's and therefore that cash will get put to work buying existing equities. There will also be a January effect in the smaller cap NASD stocks that have been beaten up.  

There is little doubt that any NASD rally must show good breadth and volume to suggest we can drive very far into all the overhead, the downtrend and the drooping moving averages. I will settle for a good one or two week rally to 2,650 to 3,000 area. I am not emboldened by today's trading.

The Dow is still in the range, but appeared to be repulsed by the upper end of the range in today's ragged trading. 

While today's selling may have been technical, it also could be a reassertion of lower highs and lower lows. 

December 29, 2000- 8:20 AM- From a market timers perspective, it does not get any better. All of the critical elements are