2001

January 2, 2001
Kevin Haggerty

2000,
the year of the bubble that Greenspan broke by
choking off the liquidity to end the speculation. To his credit, he gave ample
warning, especially in the dot-coms, as he said on more than one occasion that
many would not survive. The honeymoon was prolonged as he flooded liquidity into
the market for Y2K — or was he just afraid of a potential derivative meltdown vis
a vis the Long Term Capital
bailout?

When he was warning about
the dot-coms and irrational exuberance evaluations, he knew that the fixed
interest rate hikes were on the way and then the inverted yield curve which
usually precedes recessions. Once the borrowing capacity of the dot-coms was
almost eliminated and the IPO market disappeared, it was all over. He succeeded
in achieving his goal — breaking the bubble. It is not a question of recession,
it is just how hard this one will be.

Greenspan started it all in
1990 when he bailed out the major money center banks from their own
over-exuberance and potential failures. He allowed the banks to borrow funds
from the window at about 1% and lend out at considerably higher rates. Once big
nice trade. The liquidity was pumped into the system and the short-term rates
had declined to 3% from double digits before the Democrats were elected. The
stock market had taken off and was up 43%. The Fed is obviously in the cat-bird
seat once again come January, as the markets look to a rate cut which many feel
is much too late.

Starting 2001, we have the
NDX 100 and S&P 500 in bear markets, with both well below their 200-day EMAs
and a string of lower highs and lows, which has to be broken to change the
trend. Both of these indexes are primarily influenced by the techs, so it is not
has or whether the market bottomed, but more like when the techs
bottom, the averages will cease their decline.

There have been excellent
rallies at some key alert zones on the way down, in addition to many retracement
short opportunities at moving averages and down trendlines. For those of you who
trade what you see and are not caught up in predictions and evaluations of the
Nasdaq and S&P 500 every day, there were some outstanding opportunities as
the dot-coms and techs crashed.

There was some typical
sector rotation, as the Generals’ perception changed to recession. The
technology-laden indexes topped in March. Utilities had bottomed out in December
of 1999 and the 30-year bond yield started to decline in January. The Generals
started to take a defensive posture in March as this proved to be the bottom for
the S&P financial, consumer staples and healthcare sectors.

While the techs crashed,
there were excellent bull moves, not only in the previously mentioned sectors,
but also some 100% moves off the lows by S&P groups like health care — both
hospital management and managed care; aerospace/defence; savings and loans; and
insurance property casualty, just to name a few.

By doing your own work day
to day, you will find these opportunities at a good risk-reward level on the
trading tree, in up or down markets. The Generals started buying the Basics this
October, probably looking to a soft landing. At the same time, the Semis stopped
their decline and are now trying to put in a base. Watch the Basics and Semis
closely. They will tell you a story.

For today, I suggest you
let the stocks trade for 15-30 minutes without taking a position. During this
time, run the list of most net dollar changes for the NDX 100
(
NDX |
Quote |
Chart |
News |
PowerRating) and S&P
500
(
SPX |
Quote |
Chart |
News |
PowerRating).
The Generals can’t hide, and we are just looking to hitch a ride in the
direction where they put their money. A
quick review of the top percentage gainers for the past five days gives you a
good starting point for 2001.

Program
Trading Numbers will be delayed today due to technical difficulties.

Have a good trading day.

2001

BUY THE FEAR, SELL THE GREED

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