El Squeezo Grande

January 29, 2001
Goran Yordanoff

It’s
easy to grin, when your ship has come in.

and you have the stock market beat.

But the man who’s worthwhile

Is the man who can smile

When his shorts aren’t too tight in the seat

–-Judge
Smales (Ted Knight) from Caddyshack

I can confidently say that there are
two very important things I have learned in
the past few years. The first being to never over or underestimate the
power of soup. The second
is don’t ever discount a rally as being “just a short
squeeze.”

With bad news concerning corporate
earnings surfacing again this morning with John
Chambers’ confession that Q1 earnings would be lighter than previously
thought, it appeared as
though the Nasdaq would be ready to give up some of its
gains from the past few weeks. Not so. The “buy the dip” consortium
was out in
full force early, even though CSCO gapped down nearly 3 points on the
open. After Friday’s
nearly 100-point rally from the intraday lows, the Nasdaq
bulls ran it up the gut again today and staged another 100 rally from
the morning lows. Hope you
caught the reversal signs in the first 30 minutes
of trading and capitalized on it.

It is clear by the inability of the
Nasdaq to sustain any selling pressure that the path of least resistance is up,
for the time being. The psychology surrounding
the market at the present time is one of confidence and certainty.
It is clear that the retail investment community is believing in the
“second half of 2001 recovery” scenario as retail brokerage advisors
maintain their highest
recommendation levels for stocks in history. You would
think that the investment community would have felt betrayed by the
“soft landing”
crowd that has now changed their stories once again.

What is important to understand is
that the markets are “fairly priced” for perhaps a nanosecond every
year. They are either overly discounting bad news or
overly discounting good news. At present, it is safe to say that the
market has adopted a
somewhat bulletproof posture as it has not only climbed the
wall of worry which was created by the dismal earnings reported this
quarter with accompanying
statements citing the rapid deterioration of business
conditions, but actually stopped and sprayed insulting graffiti on
it. Add to this the
market’s certainty that additional Federal Reserve rate cuts
will cure all economic woes in the second half of this year and you have
all the ingredients in
place for a greed-fest which should crescendo somewhere
above the 3200 level in the Nasdaq Composite.

The 15-minute chart of the Nasdaq
Composite shows that we have rallied back significantly from last Wednesday’s
intraday high but have approached an area of
resistance.

As we have approached the zone of the
down-gapping window from the 1/25 open, my best guess is for a slight
retracement to occur in this area ahead of the FOMC
decision. Once we have a close above this area, the next area of resistance
will be the intraday high of 1/24.

The daily chart of the Nasdaq gives us
another picture.

Looking at the daily chart, the Nasdaq
closed near its high of the day and right
at the downtrending resistance line. If the Nasdaq should close above
this line, the next
logical area of resistance would be the intraday high of 1/24,
followed by the 50% line of the 12/13 candlestick’s real body (shown as
a horizontal red line on
the chart). Looking higher, it appears we are being drawn
to the 3200 level to close a gap formed in early November, 2000.

With the markets’ impending reaction
to the Federal Reserve meeting being uncertain, we can only use these charts to
assess areas of resistance should the
reaction be a sustained move upward.

To be quite frank, it is a toss-up
here. No one knows where we will be headed the
next few days with the FOMC meeting coming. Just play light and don’t
take any big risks.

Have a good night.

Goran

El Squeezo Grande

BUY THE FEAR, SELL THE GREED

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