"End Of The Week Market Update" for week ending 3-17-00
On Mon. and Tues. (see "daily market updates") we indicated that our volatility model was predicting extreme levels of volatility going into Friday. The underlying reason -as detected by our model- was the shift in liquidity flows from Nasdaq to the SP500. We thought that given the high level of margin debt in Nasadq stocks, and the high level of short open interest in SP500, any sudden change in inflows/outflows would result in tremendous volatility. Indeed, that is what took place, last week. Institutional investors, and hedge funds who were long Nasdaq and short the SP500 -and the Dow- reversed positions in a classic arbitrage fashion. The question is: Can we expect the reversal in liquidity flows to remain in effect for some time? We'll attempt to answer this by examining each index individually. First of all, one thing that was clear and undisputable, from last week's action, is that money does not want to leave the market! It simply rotates, and that is positive for maintaining a bullish scenario for the US market -in its entirety- going forward. In our analysis, we make the assumption that if the Fed. Reserve increases short-term interest rates by ONLY 25 basis points, liquidity will remain in favor of the market. If the Fed. increases short-term interest rates by 50 basis points, and maintains is "tightening bias" then liquidity will begin to leave the US market. Thus, making the assumption the Fed will continue its "gradual approach" and so liquidity will remaining positive, here's what we are facing. A) The Dow has just completed three higher highs and three lower lows. In classical chart analysis, this is a "broadening formation" which is always bearish. In a broadening formation, upon rebounding from the third lower low, the market retraces 50% of its previous decline, and then it resumes its downtrend. The Dow has just retraced 50% of its decline from the January highs. Thus, IF the Dow is still in a bear market -as the broadening formation suggests- then we should expect it to roll-over. On the other hand, if the trend has changed indeed from bearish to bullish then further and more dramatic gains lie ahead. At the moment we have to maintain our neutral standing and allow the index to show us where it wants to go. B) The SP500 benefiting from the reversal of capital inflows is on the verge of making new highs, unconfirmed by every other index! Is it leading the way to a new leg-up in this never-ending bull market, or we just experienced a dramatic surge within the context of a bear market. It is way too early to tell, from just past week's action. Again our model remains neutral, as more data is needed, to make a convincing case one way or the other. C)The Nasdaq -on Thur. and Fri., retraced 50% of what it lost between Mon. and Wed., yet on both Thur. and Friday advancing issues barely outnumbered declining ones. The advance came from the semiconductor stocks with everything else lagging. That could be a bit worrisome, because it could signal the begining of a broader and more severe break down in the days ahead. On the other hand, it is not unsual, for the stronger stocks, to lead a new leg-up, with the rest following in the days ahead. Again, more data is needed to make a convincing case, thus we remain neutral. In conclusion, if liquidity remains positive for the market as a whole, if capital inflows favor the Dow and the SP500, more likely Nasadq will lag for a while. If inflows reverse , then Nasadq will resume its uptrend, at the expense of the Dow and to a lesser degree the SP500. If the Fed. really attacks the market with a 50 basis pts increase while signaling further increases in the future, then it might be time to consider moving into money market funds for a while!

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"End Of The Week Market Update" for week ending 3-10-00
Thru-out the week we observed the same thing that has been happening (in the most dramatic fashion since late January)over the preceding two weeks: "investors" keep trying to pick the top for Nasdaq by selling short "high flyers" while at the same time they have been trying to pick the bottom in the SP500 -as evidenced by heavy call buying- Unfortunately neither has worked! Nasdaq keeps going higher forcing short-sellers to cover at higher prices, thus pushing prices even higher!, while at the same time call buyers on the SP500 have been consistently burned! At some point both camps will throw the towel, and we'll see a short-to-intermediate term top in Nasdaq, and maybe, some bottom in the SP500. For this coming week, we forsee volatility due to "triple witching" expiration on Friday, and anxiety over next week's FOMC meeting.

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"End Of The Week Market Update" for week ending 3-3-00
The two scenarios -each for Nasdaq and the SP500- have nearly equal probability of occurence in the week ahead. Thus, we're neutral on the SP500, and neutral to bullish on Nasdaq. As we mentioned thru-out the week, the target price forecasted for Nasdaq was 4950 +/- 100pts. We think Nasdaq will make a run towards the 5050 level before it takes a break, and then it will probably march towards 5250.

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"End Of The Week Market Update" for week ending 2-25-00
Those of you who are subscribers, you recall that last Friday we sent you an email, alerting you that we had revised our downside target for the SP500, and thus you SHOULD NOT BUY the index when it reached the 1325-1335 level. In addition, the two most likely scenarios that our short-term generated for this week, unfolded remarkably accurate. The SP500 continued to decline while the Nasdaq moved higher. We made the point that at this junction one of the two indexes will ultimately take the other with it. Today Friday, we saw that as the Nasdaq weakened with the Dow and the SP500 falling below critical levels. The two scenarios generated by our model for the upcoming week continue to be bearish for the SP500 and neutral to bullish for the Nasdaq. We would like to mention something that we find rather disturbing: for the past ten days every time the SP500 has had a rough day the put/call ratio has been .39-.34. Today with the Dow below 10,000 the ratio was .37. That tells, that people are very optimistic and they're trying to buy the "dip" which obviously is not working. Bottoms are made out of fear and panic, they are not made out of optimism for a quick rebound! Several other indicators are revealing the same. Hence, we must conclude that there is more to come, and any rebound will be short-lived. Today, we also saw some cracking on the Nasdaq, although it is still in good shape, we strongly believe that if the Dow and the SP50 fall further, Nasdaq won't be able to escape a sharp decline either. We suggest, you stay in cash (in our managed accounts we're 31.50% invested), and sit it out untill the market achieves a real bottom.

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"End Of The Week Market Update" for week ending 2-18-00
If you recall (see both our daily and weekly updates of the past three weeks) we had predicted that another increase in interest rates will result in a sell-off, also both in our Feb. newsletter and in our weekly updates we said that "high flying" stocks do not get affected that much by 1% rate increases over an eight month period, and thus Nasdaq would largely be unaffected. What has been happening since the last rate increase, is exactly in line with what we had predicted. In addition, we said in several occasions that the SP500 will reach 1335-1325 before it finds a bottom. We're almost there now, where do we go from here? Please take a look at the two most probable scenarios that our proprietary forecasting model has generated for the SP500 and the Nasdaq. As you see, the bullish scenario For Nasdaq has a higher probability, while the bearish scenario for the SP500 is the one with the higher probability. We assure you that at some point -and we believe that point is at the current junction- the divergence will cease to take place. We believe over the next few days there will be a tug of war between SP500 and Nasdaq. Whichever manages to take the upper hand, will pull the other with it. If the SP500 rebounds early in the week and then it falters again, not only it will head another 7%-10% lower, but it will pull Nasdaq with it. If the SP500 finds a stable bottom, Nasdaq has still enough firepower to pull both markets up. We can not speculate, which scenario will take place at this point, but we will have a better picture after the first 2 days of trading

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"End Of The Week Market Update" for week ending 2-11-00
In our "end of week market update" for 1-21, as well as, in our Feb. newsletter, we made very clear two points: a)"old economy" stocks DO get affected by higher interest rates, and b)"new economy" stocks DO NOT only to a point! What has been happening in the markets the last two weeks, simply confirms our point of view. However, this is what we would like to point out: as investors abandoned the Dow and the SP500 in favor of Nasdaq stocks, drove already overpriced stocks to ridiculous levels, which will in turn lead to a much needed correction for Nasdaq as well.The "advantage" that high growth stocks may have against higher rates has vanished given their absurd price levels. Please note in the charts below, that Nasdaq, is not only overbought, but also at the most overbought levels-by our indicators- in the past two years. At the same time -as we pointed out last week, see 2-4-00 update below- momentum indicators have rolled over while the index has been marching higher. All, these constitute a recipe for further decline this coming week.

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"End Of The Week Market Update" for week ending 2-4-00
On Wed. our short-term model flashed a "sell" signal which was upgraded to "neutral" on Thur. due to the broad improvement in the market. By Friday noon our model was turning negative again. It has been our empirical observation, that when the model behaves erratic, the market is at a turning point. Please see this month's newsletter for charts and commentary

"End Of The Week Market Update" for week ending 1-28-00
As it can be seen on the charts below for the SP500 and Nasdaq , both markets have been in the process of rolling over for the past 5-7 days. Short-term the markets are oversold, however our 30day indicator has not bottomed yet. That means, there is a good chance the market may recover early in the week, and turn back down towards the end. Either way, time wise we do not see this decline lasting beyond next week. But keep in mind that if the markets recover on Mon. and Tue. but they turn down Thur. and Friday, the damage could be rather big -also the buying opportunity will be rather big as well!-

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"End Of The Week Market Update" for week ending 1-21-00
One of the assumptions of our investment philosophy is that the market is "dynamic" NOT "static" In other words, the market is constantly changing, and along with it,the standards of evaluation. What worked well up to yesterday, may not work today! Thus, we have adopted a rather flexible methodology that allows us to account for the market changes, in addition, we employ "exponential" averages in order to give more weight to more recent data than more distant ones. Having said all that, here are the points we would like to make: A)does it make sense for a certain segment of the market (notably high-tech and biotech) to keep advancing in the face of higher interest rates? The answer is, to a point YES. Companies that are expected to grow at 40%-50% a year for the next five years are not affected by a 100 point increase in interest rates (200 or 300 points would make a difference)So, it is not all that strange that the rest of the market has stalled while biotech and high-tech are continuing to march ahead B)Can just two sectors of the market keep moving up while the rest isn't? On that one the answer is NO when P/E ratios are at stratospheric levels. C) what are the implications of the inverted yield curve between the 10 and the 30yr bonds? The implication is that the market is expecting a slower economy ahead (an inverted yield between the 2yr treasury and the 30yr bond would imply a reccesion lies ahead, that has not happened yet) D)Is the FED determined to slow the market down? Probably yes, but in election year we do not believe the FED wants to cause a recession! E) have the techicals improved? Judging from the areas we key on, the answer is No! Does that mean anything? not really the market has been able to march higher in the face of horrible technicals! F)Where do we stand now? By older standards the market should have tanked long ago, by more recent standards (last 12-18 months) the market can continue to trend higher while enduring some scary bumps here and there -although one must keep in mind that a scary bump could turn into a bear market if we have a recession ahead)Our forecasting model correctly gave us a "NEUTRAL" signal by predicting a dichotomy between the Nasdaq and the SP500 over the past week(see "stock market timing recommendations"). Nothing has changed, the neutrality of our model indicates a "turning point" at this junction. We can either propel even higher with the SP500 joining the Nasdaq, or the other way around. Given how overextended Nasdaq is, the first seems to us more likely, thus, some caution here, we think is warranted. Something that has alarmed us also, is the fact that our proprietary accumulation/distribution indicator is showing heavy distribution in the stocks that comprise the NDX index. Heavy distributions take place prior to tops. Therefore, even if Nasdaq continues up in the near term, somewhere ahead (we think sooner than later)there is a "bump" coming! To put all together, we strongly believe some heightened degree of cautiousness at this point is highly warranted, investors should not be chasing stocks for the intermediate term. Let the market take a breather and then go back in!

"End of the week market update for week ending 1-14-00
The week was characterized by high volatility and lower prices in the internet stocks. For three consecutive days (Wed., Thur., Fri., see daily updates below) our volatility model indicates high probability for changes in excess of 2.5%. Usually, when that happens it means we are at a "break point" either the market will break out, or it will break down. Our forecasting model is giving us two scenarios with high probability for the Nasdaq for the next 5-15 trading days (see below)However, what we find really interesting is the scenario we're getting for the SP100 for the next 40-60 days. Keep in mind, that the further the forecast into the future, the less reliable it is, (40-60 days for these markets is an eternity!) Nevertheless, the picture we're getting is that although in the short-term the markets may stall, we probably have more to go on the upside until about Feb. or March.