Why I Think A Top Is Imminent

  • July 21, 2003
  • Peter Navarro

Market
Trend: Up

Market
Outlook: Possible topping pattern

Sector Watch: Housing (-) and Mortgage Market (-)

David’s Pick: Strangling the Cubes

Peter’s
Pick: Voice Over Internet Protocol Basket



The Broad Market Outlook:
How Many Toppings Would You Like on That Rally?


The broader indices finished in
the red for the week, while the “Dow” managed to make the green. Prices still
remain broken out of their trading ranges on all three major indices. However,
recent price action, sentiment, and some of our other technical indicators are
indicating a top is imminent.

Many commentators have rushed to
go on record proclaiming the “new bull market!”  The earnings reports do not
quite substantiate it, the economic data do not quite substantiate it, and last
week demonstrated that the bond market does not quite substantiate it, as bonds
sold off in both the treasury and corporate markets — although a rise in the
long end of the yield curve can presage a strong recovery. 

Next week brings another slew of
earnings highlighted by such market leaders as: eBay, Amazon.com, MMM, Texas
Instruments, UPS, Merck, AOL, and Amgen, just to name a few. While eBay is
likely to come out with very robust numbers, the jury is out on the rest of the
participants.

Bottom line: Our
shorter-term view is neutral-to-bearish, and our longer-term view remains bearish.  But check out David’s pick for how to play a continued
upward move with the QQQs.

The Week’s Macro Data Market Movers: Earnings Feisty or Famine

The
Macroeconomic Calendar

DAY

EVENT

Monday

  • Index of Leading Indicators

Wednesday

  • MBA mortgage applications

Thursday

  • Jobless claims

Friday

  • New and Existing home sales

 

A pretty quiet week on the macro
data front so look for earnings to dominate. Expect the Nasdaq to get a bump
out of the eBay numbers — but understand that eBay’s success is more a
function of its business model and market share than economic recovery.

Up: Down: Real Estate and the Mortgage sectors are
weakening.


Peter’s Pick: Voice Over Internet Protocol


From the space
brought you TIVO, IIJI, SINA, SOHU, etc., I now offer something less than a sure bet. It
looks like using the Internet to place phone calls rather than wireless cell
phones or pole and wire land lines is coming up fast on the Baby Bells.

Playing this macrowave is a bit
difficult for several reasons: First, the best bet — Vonage — isn’t publicly
traded. Second, both the Baby Bells and cell phone companies may simply coopt
the technology and thereby kill the VOIP small firms like Net2Phone and 8X8 in
their cribs. Still, it might be worth the proverbial crapshoot to begin
building a VOIP basket but keep in mind that the fundamentals are questionable
for all below.

Net2Phone (NTOP) is the granddaddy in the market, having been around for several
years — but so far its technology
isn’t very good.  Primus is NOT a pure play as it
has fingers in several pies. 

From the Primus website: “Primus is a global
facilities-based telecommunications carrier offering bundled voice, data,
Internet, digital subscriber line (DSL), Web hosting, enhanced application,
virtual private network (VPN), and other value-added services.” Technicals
are currently weak. 

From the 8X8 website: “For
residential broadband subscribers, the Packet8 service offers a cost effective
and feature-rich alternative to traditional telephone service. Subscribers can
use the service via various types of easy to set up telephone devices including
IP phones from 8×8, Windows XP Messenger software clients and others. Customers
can choose from a broad range of available area codes and telephone numbers.
With 8×8’s Portable Phone Number users can take their IP phones or laptops with
them wherever they go and receive phone calls at their Packet8 telephone number
just like they are at home. In addition, 8×8 offers subscribers useful telephone
features such as call waiting, caller ID, call forwarding and others.”  A
VOIP pure play penny stock with high risk that is being delisted by Nasdaq and
running at a loss.

TelcoBlue (TLCB.OB) is an over-the-counter pure play currently trading at a
nickel with a 52-week high of 75 cents. From the web site: ” telcoBlue,
Inc., utilizing its award winning VoIP telephony technologies, delivers low cost
high quality calling capabilities to individuals and businesses worldwide.
Initially, the Company will be launching two distinct services branded CallsAmericaâ”