Market Myths 101

April 5, 2001
Goran Yordanoff

This is a multiple-choice exam:

Please identify which of the following are untruths, fallacies, and/or delusional:

a) The U.S. economy is not in a recession, although the manufacturing sector clearly is, because the consumer
will continue to spend and power the economy back to the GDP levels of the bubble days.

b) Healthcare stocks like Tenet Healthcare (which today established the world’s record for number of CNBC plugs in one trading session, exceeding
the prior record holder, Federated Department Stores) are great stocks to buy
here because they have performed exceedingly well the past twelve months (
(
THC |
Quote |
Chart |
News |
PowerRating) up over 100%) and you don’t want to miss the next 100% run up!!

c) The semiconductor index will pull the Nasdaq out of this slide and restore investor confidence to this index. Hold on…I think this one was
already proven to be a big con job. Never mind.

d) You will drown if you swim too soon after eating.

f) Rumors of a super-duper top secret Federal Reserve meeting in which they would cut interest rates again surfaced today and helped power an intraday
rally. After reading about this rumor reported on my news service today, I pondered the following things: there were three different Fed members
speaking in three different states today and three other Fed members will be in different states tomorrow. Second, Fed Chairman Alan Greenspan had just
finished testifying before the Senate Finance Committee and did not likely have time to assemble such an emergency meeting. Third, the Fed virtually
always holds regularly scheduled weekly meetings, something the general public is somehow not aware of. Fourth, most people will continue to be
gullible pumpkin-heads.

g) Don’t focus on the fact that the current state of the economy and technology sector is dismal, rather, look ahead and buy now because we will
have a recover really soon.

h) All of the above.

If you chose (h), you are a very astute trader who probably has been doing very well for the past year. Congratulations.

On to the market, the Globex futures have been seriously goosed due to allegedly good news coming out of Dell. The “good” news is apparently that
Dell will meet their $8 Billion dollar number for this quarter, which of course, is a downwardly revised estimate and down sequentially from last
quarter’s $8.7 Billion figure. Interesting. In addition, Dell said that they were unable to forecast revenue or earnings figures for the rest of the
year due to “economic uncertainty.” For this the market has a reason to celebrate?
Oy vey.

In the world of reality, we may be seeing the first rumblings of the looming credit quality crisis the financial sector ultimately faces. Citigroup and
others have stated this morning that they face huge losses from telecom loan
defaults. This harrowing reality, however, is somehow overshadowed by the fact that Dell
pinata has been savagely ripped open but the street is more concerned about picking up the candy and not by the fact that the ‘ole boy
has been dismembered.

It appears the bulls are ready to give it another “college try” and attempt to eradicate as many shorts as possible on this ridiculous gap up this
morning. Certainly, as the early morning “strength” (hard to keep a straight face even as I write this) seems to be spread throughout the tech sector
(networkers, fibers, storage, PCs), this may be just the thing necessary to bring the defensive issues down off their high horse. With the healthcare
sector trading at multiples over double their historical mean, they may be a prime target for some extensive profit taking. Interestingly, I have a a
feeling that this rally may last into the end of the week and perhaps into early next week. However, it will be extremely choppy and if you choose to
play from the long side be sure to take profits relentlessly.

I will be traveling to Monterey, Calif., for a whale-watching expedition until April
9. I haven’t taken a break since I began with TradingMarkets.com so I hope you can let me slide here. Trade well, don’t chase, and maintain your
stop losses. Many of you questioned me on the necessary psychology involved to successfully trade on the message board a few nights ago. These were
excellent questions which I intend on discussing in a future piece. However, in the short term, I can tell you that as long as you evaluate the
potentially scenarios that can play out when you are considering entering a trade and you determine your stop and/or risk tolerance, you should
eliminate much of the stress and anxiety that occurs when a trade moves against you.

For those who didn’t read Gary Kaltbaum’s April
2 column, I very strongly recommend you do. It was absolutely wonderful. In addition, I strongly urge
all of you to keep close tabs on what options god, Jon Najarian, says on a
daily basis. When the institutions speculate, they do so in the options pits of Chicago. Najarian’s insights are invaluable in getting a feel for what
the big money players are betting on.

In addition, I’m looking forward to attending Tony Saliba’s seminar later this month. Hope to see some of you there.

Be good.

Goran

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Market Myths 101

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