Larger Than Life

January 22, 2001
Goran Yordanoff

All you people can’t you see, can’t you see

How your love’s affecting our reality

Every time we’re down

You can make it right

And that’s what makes you larger than life

— Larger Than Life by The Backstreet Boys

In today’s action, the Nasdaq Composite took a
one-two punch from Dell Computer and American Express in which both firms stated that they were gravely worried about the economy and future earnings. You don’t think that would hurt the market, do you? Of course it wouldn’t. Is this Nasdaq truly “Larger Than
Life”?Â

The Nasdaq Composite closed only 12.47 points in the red with the Dow Jones Industrial Average only shedding 9.35. The market continues to construe these corporate-warning flares as positive for future corporate earnings as it will present the Federal Reserve with no other option
but to cut rates further. At the rate we are going, institutions will be paying us to borrow money from
them.

On the surface, the Bull argument seems to be playing out. With the small point loss by the major indexes today, it appears as though the Nasdaq is digesting its recent run and preparing for another leg up. This may prove to be true. However, as I have stated before, the
“Don’t fight the Fed” argument may not apply in this particular instance.Â

With the economic downslide accelerating (as seen by this
morning’s release of the Index of Leading Economic Indicators numbers that showed a 0.6% drop, the biggest single month decline since 1980 for the fifth straight month of declines) and the potential for the
world’s sixth largest economy (otherwise known as the state of California) being thrust into a nasty recession, a weakening dollar, wide credit spreads, and the credit quality problems that are still looming, it is difficult to accept the “market always rallies during easing cycles” argument.

As seen in the Nasdaq Composite chart below, our expanding-volatility triangle is alive and well.

We have tested and retested the upper regression line of this channel and now appear to have begun a retracement. Point (a) would be the first target for support on any potential declines which take out today’s low of 2722 in the Composite. As seen with the red trading channel drawn, it appears a new trading range is being formed on this retracement. The 50% retracement line of the latest 600 point rally of the Nasdaq Composite is drawn in as a reference point.

Simple Fibonacci analysis of the recent run in the Nasdaq futures shows us additional areas to watch.

We can see some clear retracement levels indicated on the chart above for the March Nasdaq 100 futures that should help us identify potential retracement support levels.

All of the shorts I identified in Friday’s commentary hit for enormous profits. Hope some of you took the trades and didn’t listen to some of the message board postings about me being a “short kingpin.” Maybe those are the same people who own
(
CMGI |
Quote |
Chart |
News |
PowerRating) and
(
YHOO |
Quote |
Chart |
News |
PowerRating) at $200+ and
(
SDLI |
Quote |
Chart |
News |
PowerRating) at $400+ and are mad at the world. The “overhead resistance” crowd gets angry when us astute traders play the short side when it is there for the taking. Don’t listen to anyone, only to what the market is telling you.

Given the negative after-hours market reaction to
(
VTSS |
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PowerRating) and
(
TXN |
Quote |
Chart |
News |
PowerRating) reporting smelly results for the current quarter, we see several semiconductor stocks bidding down as well as the
QQQs. This should spill over into a negative open for the Nasdaq Composite tomorrow. I’m still short from Friday and will continue to press the short side until my stops are exceeded.

Long Watch: NADA (not a symbol — it’s Spanish for
“nothing”)

Larger Than Life

BUY THE FEAR, SELL THE GREED

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