"End Of The Week Market Update" for week ending 9-22-00
The week that just ended has left, unanswered, the question whether the markets have bottomed yet. The erosion in prices that we have seen across the board, thru-out the month, is indicative not only of the poor technical condition of the equity markets, but also, of the deteriorating fundamentals. Most "experts" have been expecting a rather healthy and robust second quarter. This assumption is now coming under doubt. It is not just our own economy that shows signs of a turndown, but also, the economies of our trading partners that have weakened as well. The high oil prices, the faltering Asian equity markets, and the defacto flat capital spending in Europe, can not be construed as simple noise in the background. We believe the markets will gyrate until, 3rd quarter earnings are out, and investors can finally make up their minds about the direction, and magnitude, of future earnings growth. For now, it appears that the markets may have put in a short-term bottom -given Friday's perfomance. We think this probably more true for the DJIA and the SP500, than the NASDAQ. As we have mentioned the last few days, we find particularly suspicious the upward accelaration in a handful of stocks such as EXTR, JNPR,BRCD, NEWP, (CIEN especially) etc. When a small number of stocks appear to be embarking on a parabolic run, just when the rest of the market is tanking, is never a good sign. When a stock goes parabolic, right before earnings are due, invariably speaking, it always goes down, even if the earnings are as expected. In any case, given how oversold the markets have been, we do not rule out a counter trend rally, which it will probably be worth participating into. We are simply not sure, if that counter trend rally started on Friday!
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"End Of The Week Market Update" for week ending 9-15-00
Those of you who have been following us on a regular basis (thru the newsletter, the weekly and daily updates) were not surprised at all to see the markets deteriorate as much as they did this past week. We have repeatedly pointed out the underlying weaknesses in all the major indexes(DJIA,NASDAQ,SP500) The question at this point is this: "the indexes are near support levels, are those levels going to hold?" We believe that initially they will. In all likelihood the markets will find a bottom on Monday, and they will make an attempt to rally for 2-3 days. If that recovery rally folds, then the support levels will be violated by the end of next week. If you look at the two WAVG Aggregate Indicators for both the SP500 and NASDAQ, they are not at the bottom, but they are very close to it, usually at this level we get a small rally, then the market turns back down again for another 2-3 days, and in that case the indicators bottom out. One thing to keep in mind, is this: while small investors were buying technology stocks in August -thinking the market will shoot to the moon in September- institutional investors have been unloading the very same stocks since mid-July, and they are still selling. Unless there is some institutional buying, the small investors can not sustain any rally by themselves. In addition, although NASDAQ, is down almost 10%, many of the stocks that need to correct (JNPR,PWER,NWEP,BRCD,CIEN,EXTR,AMCC etc)are still near their highs. Therefore, we believe the correction may not end, unless those stocks with the oversize gains experience some losses as well. Furthermore, the collapse of leading tech stocks such as INTC, MU, HWP, does speak volume about to the precarious situation of technology stocks(ie NASDAQ). The SP500 is rather vulnerable as well. It could get hit hard, by both declining tech shares, and, profit taking in financial, energy and utility stocks. The situation will begin to clear sometime early October when the actual 3rd Quarter earnings reports begin to come out, but by then, the damage might be already done. On another note, we would like to make two comments, one concerning the Dow, the other concerning ORCL. It is universaly known that most Dow stocks, are multinational, cyclical companies. Which any slow down in the economy affects their earnings, a strong dollar also affects their earnings, high energy prices affect their earnings as well. Given that everybody agrees the economy has slowed down, crude has been hovering around $32-$34 a barrel, and the euro keeps making new lows every day, why in the world, would anybody be surprised by earnings shortfalls in Dow companies? That should have been a foregone conclusion, therefore, anybody losing money from declining prices in Dow stocks, gets no sympathy from us! The same holds true for ORCL. Wishfull amateurs were buying the stock ahead of its earnings report, betting that good earnings will propel the stock even higher. When it tanked after what was seemingly a spectacular earnings report, people were at a loss to explain why. Here is the reason why: the stock over the past year has appreciated almost 300%, it currently trades at 120 times earnings, although its growth is above average, ORCL is a mature company, meaning it will not have exponential growth in the future (near or far) to warrant such an extravagant absurd valuation. At 120 times earnings, for a company the size of ORCL, the price reflects every possible good scenarios that people can think of, and even scenarios people can't think of yet! So, when the earnings report came out, institutional investors decided this was as good as it gets and they dumped the stock. That should have been no surprise either. Thus, those who were buying ORCL on Wed. and Thursday, and now they're feeling sorry for themselves, they also do not get any sympathy from us![WE APOLOGIZE IF OUR LAST TWO COMMENTS OFFENDED ANYBODY, WE ARE ONLY TRYING TO MAKE A POINT!]

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"End Of The Week Market Update" for week ending 9-1-00
Something really noteworthy took place last week, which has the potential to change the outlook of the market in a dramatic way. We have said repeatedly that NASDAQ can not continue higher unless more stocks participate in the rally. In fact our timing model gave a "sell" signal on the assumption that the rally would continue under the same conditions (which could not go much further with only 75-100 stocks responsible for 80% of the gains) However, for the first time since April, the A/D line has turned around in earnest. Last week we saw second-tier stocks participating in the advance. If this continues, then we will turn very bullish on NASDAQ. One week only, it is not enough to draw conclusions, especially during a week that was dominated by low volume, and the rollover of futures contracts. Nevertheless, it was a very positive week! On the other hand, our WAVG Aggregate Index, shows that NASDAQ might be at the top of its range. However, it has been our empirical observation, that when NASDAQ is launching a new multi-month rally, this indicator becomes "overbought" (as it appears to be now) during the initial upward thrust, but that does not mean the market turns down. If the improvement in the A/D line continues, then the "overbought" reading of the indicator needs to be ignored, because the market is just getting started. If the improvement in the A/D line, was a one-week event, then the overbought reading of the indicator is valid, and the recent rally is pretty much done. Remember what we said last week, if NASDAQ has topped out for good, the next stop will be 1650-1750.

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"End Of The Week Market Update" for week ending 8-25-00
In our daily market updates on 8-25-00 (before the opening, see "daily updates") we said that after the close on 8-24-00 our indicators gave a "sell" signal. We then added "...that does not mean the market is going to start a decline today -although it might- What it means is that, over the next 1-5 trading days, a short -and maybe intermediate- term top should be in place..." We feel very strongly that the market could experience a one to two day sharp advance over the next few days, but we do not believe that would mark the start of another advance, rather, it will mark the end of the current one. The real question is this: Have the markets, and especially NASDAQ, topped out not only short and intermediate term, but also long-term. If that is the case, you should expect NASDAQ 1650-1750 sometime in mid 2001, and if things really get out of hand 1100-1000 sometime in 2002. Some of you may think that we are smoking something  that is probably illegal! Well, we assure you we are not! We hope we are wrong, but we let time prove that.As evidenced by the charts below (see Wavg Aggregate Index, which measures the overall strength of the market) the market for the past two weeks has been "coiling" in low volume. Historically, this kind of behavior has resulted in a sharp short advance, followed by a 2-3 week decline, or, a sharp short decline, followed by a 2-3 week advance! Many of the leading stocks -that have carried the current advance- are over-extended, thus we fail to see how the market can move higher -for another 3-4 weeks- without any profit taking. Most importantly, the current run-up in prices has been mainly due to speculation, rather than conviction. Two glaring examples were in full display last week regarding ASTM and EMLX. The National Health Institute, early in the week, announced that it would recommend the use of embryos in research. The two stocks with the largest advances were ASTM and STEM (we owned STEM in our managed accounts, and we sold on Friday at $11.00)STEM legitimately advanced because it is one of the pioneers in the field which stands to gain the most from the lift in the ban of using embryos for research. On the other hand, ASTM which had the largest advance, DOES NOT use embryos in its research, in fact it has nothing to gain from any change in policy! Yet the stock jumped 250%! Obviously speculators were buying simply because the stock was "moving" and they had no knowledge of the company's prospects. Another example was the fiasco over EMLX on Friday. On Wed. and Thursday EMLX moved sharply, building on recent gains. On Friday the stock opened at 112 and within one hour had plunged to 48, due to a bogus news release regarding the company. If people had been buying EMLX on conviction in the company's prospects, they would have been skeptical of the news release, and at the very least, they would have checked its accuracy before dumping the stock. That was not the case, as fast as speculators had piled on the stock earlier in the week, that much faster they exited the stock, causing it to plunge 68% in less than an hour. Eventually, it was revealed that the "news release" was a "hoax" and the FBI is looking for the perpetrator...! The point here is simple, these two are not isolated incidents. Short-term speculators have driven prices up the past two weeks, making the market very vulnerable to a sharp decline if more buyers do not come in to drive prices higher. The problem is, we do not know, how many market participants, will be willing to step up to he plate, buying EXTR, CIEN, BRCD, BRCM, etc., near or at, all time highs...

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"End Of The Week Market Update" for week ending 8-18-00
On the surface, not a whole a lot took place this week. All of our indicators for the SP500 continue to fluctuate around the zero line (see August newsletter for more details) indicating that volatility should pick up substantially in the next one to two weeks. Momentum indicators have turned slightly negative, raising the likelihood that the volatility will be on the downside, but we do not have enough evidence to be reasonably certain about it. Similarly , Nasdaq is also in the same predicament. We would like to concentrate on the A/D line, because we do think it holds the key to the near-term direction of Nasdaq. Clearly the recent decline on the A/D line has been arrested the last two weeks. That means two things: first the advance of the past two weeks, had no following from the broad market, consequently, it is not sustainable. Second, if the 40-50 big cap stocks that are responsible for almost 80% of the point gains, become subjects to profit taking, then there is floor undernearth to provide support (the next 10%-15% move will be on the downside) On the other hand,if the A/D line begins to advance, then the rally can go on for several weeks. Which one of the two is going to take place? Again, since momentum indicators have turned slightly negative, the odds favor a roll over of the A/D line along with the index. If more stocks do not participate, we are CERTAIN that BRCM, BRCD, EXTR, CIEN etc., (the " crowd pleasers") will not be able to carry Nasdaq all by themselves to another 15%-20% advance from current levels. At this point, sitting it out for 5-10 days, until the picture becomes more clear, is probably the best and safest approach.

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"End Of The Week Market Update" for week ending 8-4-00 This week we have posted a couple of charts, such as the Volatility model and the WAVG of Deviations chart, which normally we don't post, so, we'll take a little time to explain how they work and what they mean. We'll start with the Volatility model for the SP500. As you see, it has been rather accurate in identifying bottoms and tops for the SP500 (it is NOT designed to work with Nasdaq)It moves between 1.1 and .9,on average -with .8 and 1.2 being the extreme levels- When it is at 1,it means the DIRECTION of volatility is neutral. In conjuction with this model, we also employ a 5 day ROC. If the model is moving upwards and its ROC is increasing, that means, higher volatility with POSITIVE bias lies ahead. If the model is either topping or bottoming while the ROC is diminishing, that means, the current bias of volatility is about to change. If the model is moving down while its ROC is increasing, it means, higher volatility with NEGATIVE bias lies ahead. The opposite hold true for the opposite set of circumstances. Currently, the model is near the top of its range, and it is pointing up. Thus, the SP500 probably has a little more left on the upside, but we would not expect anything noteworthy. The other chart -for Nasdaq- depicts how far price has deviated from a series of regression lines of different time intervals(5, 10, 20, 30, 40 and 50 day)The degrees of deviation between price and the regression lines are averaged -on a weighted- basis to come up with the chart that you're viewing. It also has been rather accurate in identifying tops and bottoms. More recently, it correctly identified the bottom that Nasdaq put in last Friday. Currently, the indicator is moving up, but its rate of change is decreasing, meaning, Nasdaq can go higher, but it is running out of steam. That is also confirmed, by the choppy action of the market, and its generally poor breadth and leadership. There has been a steady out-flow of funds from Nasdaq listed semiconductor stocks into NYSE listed financial stocks. Biotech stocks appear to be forming a "head and shoulder" formation, while internet stocks are flat, and the only ones carrying the market are the fiberoptic and networking stocks. Whether the narrowness of the rallies that take place in Nasdaq continues or not, is something we really have no way of predicting in a quantitative way. However, we insist that if rallies do not become broader, Nasdaq is headed for trouble not too long from now.
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"End Of The Week Market Update" for week ending 7-28-00
We would like to offer an examination of both current fundamental and technical condition of the market with special focus on Nasdaq. But first, an overview of what we have said over the past two months. In our May 4th Newsletter we predicted that second quarter earnings would be robust, but the market crash in April was probably a prelude of what was looming ahead 4-6 months down the road. We followed with our Newsletter in June, in which we expressed serious doubts that the perception of a slower economy ahead, was valid, and we further said that if indeed the economy does slow in the second half of the year, corporate earnings will be adversely affected. We also pointed out that out of the 12 stocks that had the biggest percentage moves, during the week that Nasdaq advanced 19% in 4 days, 7 of them had NO earnings, and the other 5 that did, their P/Es ranged from 100 to 628! We implied, that the 4 day exuberant rally was a speculative orgy all-over again and had nothing to do with the actual state of the economy or corporate earnings. Subsequently, in our July Newsletter, we continued to express skepticism about how much the economy had really slowed down, and we listed the early warning signs that had revisited the market, and their eerie similarities to the warning signs that preceeded the colapse in April. The past two weeks, the real data, finally confirmed the validity of our opininon. Second quarter earnings were robust, but most companies warned of lower profits in the second half of the year. The GDP came at 5.2% far above the 3.8% economists were expecting( the only surprised ones were Wall Street economists, who are ALWAYS surprised to find out how far off their forecasts were!), proving that the economy not only it has not slowed but it is about to re-accelerate its growth (thus the need for higher interest rates) To put the pieces together, from a fundamental point of view, the perception is again changing form positive to negative. Higher interest rates must again be re-considered in the valuation equation, while at the same time, lower corporate profits must be taken into account for the second half of the year. Neither of these two factors is bullish for stocks, at least for the near future. The market has not fully discounted both factors. From a technical pont of view, we would like you to take a look at the Nasdaq cumulative volume, and Advance/Decline line(in our July Newsletter we already showed all the non-confirming indicators). As you can see very clearly, as the market advanced from mid June to mid July. MOST stocks were losing ground. The advance was being supported by an ever decreasing number of high octane speculative big-cap Nasdaq names such as BRCM, JNPR, BRCD, RBAK, EXTR, etc. The problem with such a narrow rally, is that at some point the last silly/greedy speculator has bought with no-one else left to buy the same 75 stocks over and over!(Anyone buying BRCM at $260 hoping it goes to $500 -anytime soon- is comicaly silly, anyone buying BRCM at $260 hoping to cash in on the next 40 points advance -in the next two days- is both comicaly silly and dangerously greedy!)The evidence, so far, indicates that the rally from June to July, was a classic bear market rally in a distribution phase. At the moment the market is oversold and we expect a reflex rally next week off Friday's lows, or, maybe from 100-150 points lower. We believe short-term aggresive traders should go long, on the other hand, intermediate term investors should use the opportunity to further lighten up on their holdings. We think -if the fundamental picture remains hostile, and the perception remains negative, the market may struggle for several more weeks. Also, we would like to add, that we think Nasdaq more likely will not violate the May lows, on the other hand, the Dow is the most vulnerble.
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