Hang In There, Nasdaq

September 21, 2001
Dan Delaney

The
“bottom” that stocks put in on Oct. 8, 1998, was a rough
one. It was during those dark days that the Long Term Capital debacle had forced
a late-night Federal Reserve-orchestrated meeting of Wall Street’s biggest firms
to come together to help avert a global economic collapse.

As many recall, that crisis had
begun with the devaluation of the Thai baht, which led in turn to a collapse of
the Asian currencies. The crisis was topped off by a Russian default that
rattled the world financial markets. A bottom was indeed put in amid panic
levels not seen since 1987.

So here we are back at October
1998 levels. Few would have guessed this type of meltdown could have happened,
and of course, the area most affected continues to be the technology sector. The
terrorist attack and tragedy of last week served to knock out any remaining
confidence among consumers, and a deep recession looks inevitable.

So what is the outlook for
tech? Well, the Nasdaq bottomed on Oct. 8, 1998, at 1387.06, so if the Nasdaq
can hold above that level, it would be very constructive for tech. Likewise, any
kind of progress in the new war on terrorism would also help restore confidence
to consumers and businesses alike. Is this “the bottom” that everyone
has been waiting a year for, or are we set for more downside?

The emotional extremes we now
see certainly suggest a bottom could be possible. The put/call ratio hit 127%
Thursday, and the VIX has soared into the 50s and remains at levels not seen
since October 1998. Throw in the horrible terrorist attack and you can certainly
make a good case that what we are experiencing is one of those historical (and
hysterical) market moments when things finally turn.

So what is working in tech? On
the surface it seems like absolutely nothing, and the misery is only compounded
by the slew of analyst downgrades and lowered ratings. Keep in mind that these
were the same guys raising buy ratings right into the peak on March 10, 2000, so
it’s no surprise that they are painfully negative right into this apparent
bottom now.

To gauge the health of the tech
arena, I ran some screens to see what stocks within the Nasdaq 100 had held up
best on a year-to-date basis. The thought being that the ones that held up the
best would probably do the best when the selling finally turns to buying. Of the
100 stocks in the Nasdaq 100, only 13 showed positive returns on a year-to-date
basis.

I also looked at the ten lowest
PE Nasdaq 100 stocks and the list that emerged included some of the most
battered techs. The PE ratios were based
on 12-month trailing earnings.

While a low PE or a
year-to-date performance figure is no certain way to find the next round of
leaders, it at least does highlight a couple of positive qualities of a small
group of stocks in an absolutely devastated index. It was interesting to note that
KLA Tencor made a showing on both lists, so perhaps its solid relative
performance and low PE make it one tech to keep an eye on.

Have a great weekend.

Dan

Hang In There, Nasdaq

BUY THE FEAR, SELL THE GREED

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