Three Nyuks And A Stumble

April 25, 2001
Goran Yordanoff

Moe, Larry, and Curly have
just prepared breakfast, which consists of one
hardboiled egg and one piece of ham that they all must share. The
stooges take their seats at the breakfast table and begin eating. Curly
compares the ration of food that was
placed on his plate with what is on the plate
of the other stooges.

Curly: Wait a minute!! This isn’t fair!
How come I got the eggshell and the hambone
while you guys are sharing the egg and meat??

Moe: Quit your squakin’ ! Can’t you see
that Larry and I each only have half of
an egg and half of a slice of ham, while you were given and entire eggshell
and an entire hambone? Now quit being
selfish and eat your breakfast.

Curly: (Smiling and looking embarrassed)
Gee, I’m sorry guys. I didn’t mean nothin’
by it. You guys are swell.

Well, the stock stooges certainly got what they
wanted today. They had a short
and painless two-and-a-half-day pullback that was met with much of the
same: panic buying. The funny thing
is, investors have been given the eggshell
and hambone while the major houses gobbled down the eggs and ham and
they are actually pleased with it.
Rest assured, the big money in this rally has
already been made by the Goldys, Merrills, and Morgan Stanleys of the
world. The rest of us have clean-up
duty.

After all, with the market bottom surely in place
and the Fed giving away free
money, can you really afford to miss the birth of this new bull market?
My favorite indicator which still
demonstrates that the bubble has not been burst,
as well as providing a vigorous defense of the biggest lie of all time
(which is: stocks are safe and will
always go up over time) is the Charles Schwab
commercial. Mr. Schwab tells a room full of nervous investors to “take
a nice deep breath and relax.” He goes on to tell them that if they
just buy a diversified basket of
stocks and hold them for a long period of time
(there is no elaboration on just how long) they can “weather just about
any market environment.” Oh,
really? I had no idea that making money in the market
was that simple. Well, we will test this theory soon enough. Some have
cited this commercial as an indication that investors are scared and
that this signals a bottom. I think
just the opposite holds true. Once we start
seeing debates about whether or not Capitalism is going to survive in
this country, I think that will
indicate that the bottom is in. We ain’t there
yet, gang.

Also, I have restrained from addressing this next
subject for long enough. As
Popeye used to say, “I’ve takin’ all that I can stands, and I can’t stands
no more!” The
subject has to do with the bullish/bearishness of major magazine covers
to serve as a sentiment indicator of market tops and bottoms. In the
past month I have seen/heard no less
than 100 very intelligent people claim that
the recent illustrations of bears on major magazine covers indicate
overly bearish sentiment, and
therefore, evidence of a bottom. To which I respond:
“Did you guys read the actual articles or just look at the pictures?”

I read an interesting piece by Bernie Schaeffer
entitled “The Slope of Hope — Part Deux” on
April 25, 2001. In it, he describes how Time magazine ran a
bearish-sounding cover, but the article itself pointed out the potential of a
market bottom, and in fact, tells you why you should be buying stocks right now.
The same follows for other articles in other high-profile magazines. Thank you,
Mr. Schaeffer.

So where is the extreme fear we’re supposed to
see at a major market bottom, anyway? Do you see it? Not I.

The one basic rule I like to follow in
life is to take heed of people who
have been around much long than I have. Schaeffer
definitely qualifies.

Now that I have gotten that off of my chest,
let’s get to the market.

Well, Captain Fantastic (otherwise known as the
Dow Jones Industrial Average) once
again hit center stage today and finished at 10,625.20, up a tidy 170
points on the session. There are
times when I look around my screens to see if
the closing print of the day gives me a “match” and a free pinball
game. As we suspected
in yesterday’s commentary, the stooges came for all things technology
today, even after yet more ominous warnings from analysts at the open
this morning. I believe they made some silly comments about the terrifying
telecom debt and how this may seriously hurt certain tech firms. Am
I sounding vague about the downgrades? Who really cares? Nobody pays
attention to them anyway.

Let us now examine the Dow and Nasdaq charts.

As you can see, the 50% level of the
daily bar we pointed out yesterday indeed
held as support today, as the market subsequently rallied. At this
stage, however, the RSI level of the
Dow is still at extremely overbought levels
and a look to the past (I know how much people hate to do this when
the market looks ready to rally)
reveals some significant resistance zones just
ahead. So where do we go from here? Certainly, it appears the Dow is ready to
retest the levels which it failed to penetrate during yesterday’s trading
session. The index is at a very important juncture at which
we must be quick to examine the internals of the market once the 10,700+
levels are reached. Should the Dow “break out” to levels above last
week’s highs, it will need the
confirmation of the S&P and Nasdaq to give it credibility.
Otherwise, a failed breakout will produce some extraordinary short
sales, as they often do.

The index is bouncing around in a very narrow
range here near the upper third of its
recent 40% move. Although there are some very bearish gaps down back
from March providing ample
resistance, the index has found support at a bullish
gap from last Wednesday’s open. (Remember? The day all the major brokerage
houses already knew about the “surprise” rate cut and limited up
the futures before the open?) It is a
quite literally a battle of the gaps here.
We got some very good long trades today by playing a bullish reversal
in several technology glamour names
as well as the semiconductors. At this point
of the game, be quick to lock in profits, as the market has not quite
made up its mind as to what direction
it wants to go.

Long Watch: Continuation entries on technology
names. Throw a dart. It doesn’t matter what business they are in or if they make
money. No one cares. However,
we will need a positive market environment for this to transpire. With
the Nasdaq futures down aftermarket and QCOM trading down nearly 8
points from its close, it doesn’t
appear as though the market is ready to rally
in the early going. (This preceding thought was derived from the use
of logic. Actual market results may
vary.)

Have a good night.

Goran

Three Nyuks And A Stumble

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources