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"Queasy Market Sentiment"

[written August 11, 2000...sorry :)]

It's after Cisco, Applied Materials, and Dell earnings. Cisco beat earnings estimates by a penny as usual, and its revenues smoked previous quarters and estimates. All in all a bullish quarter. Same for Applied Materials. Dell did okay, but this media favorite has long been a has-been. But, companies have been reporting good earnings this summer and they've been getting hammered. What's going on?

It's the summer post-decline doldrums. People are still kind of spooked by the big NASDAQ decline, and the media is beginning to get really proficient at writing about it. See, the media runs a little behind in these things, so I'm sure they'll keep writing about dotcom failure well into our end of year rally.

But you can tell when things are bullish or bearish, just by how the market reacts to news. Stocks gapped down hard after good earnings this summer, just because analysts didn't like this or that about the balance sheet or whatever. All a bunch of bunk. You'd wake up, see that your company creamed earnings estimates, then found it opened -5.

Good economic data would prop up the market, but it would either fail later in the day, or even minutes after the data was released. Frustrating when futures jump up 20 points, only to sell off by the time the market opens.

You can tell which ones are the huge stocks by how they move during the summer, the hardest time for stocks. Redback (RBAK), Ariba (ARBA), and Tibco (TIBX), for example, ran hard, like they were hardly even fazed by the April downturn. They bounced right back up. Other crap has languished and even still looks like it'll go down further. As said long ago, this is separating the wheat from the chaff.

CSCO gapped up the market huge, but by the end of the day, the market had sold off almost all of its gap. The next day, AMAT did little to help the market and it sagged some more. Seas of lows of the day hit at one point. DELL tomorrow is not likely to help. So what's going on? We're in high sellage time, fall, and my best guess right now is that we just had an oversold bounce, which retraced 50% of the recent downturn. If the pattern continues, we'd be heading close to 3100. People don't seem to give a shit about if their companies are making money right now or not. They just want to sell. AMD, for example, has a wonderful rosy picture, but it fell from 92 right before earnings and is now at 56ish, falling almost every day since then. Ouch. This is why I do not invest. AMD is my favorite company and it's almost fallen by 50%. Tell me why I would hold a stock that does this. That is a lot of lost gains for a "stellar" company. Lots of people are losing their shirts on their overconfidence with that one. When they all give up, it will bottom and go up.

Productivity jumped bigtime, and other key Fed numbers are in check. Most people do not think the Fed will raise interest rates any more than one more time, and we can see this confidence seeping back into the Dow, at least for the time being, with the latest rally. The Dow has been consolidating for the last year or so, and I think that a move either up or down will be huge. Considering how many Dow companies have been hit hard for earnings misses or warnings or management changes, I'd say the direction is up. And with inflation under control, people will put money back into the Dow and it will go up. At least, in theory.

I don't really think the Fed really has that much of an effect on the Naz over a year or so. The Naz has one of those silly parabolic looks to it and I think that it could very well go vertical again. This will all end ugly of course, unless it's in the process of ending ugly right now. Who knows? Growth still seems to be huge in companies, just not every little ragamuffin company.

Last year the NASDAQ bottomed in the second week of August, only to slightly dip later in that fall before zooming up and doubling in no time. The year before that, it didn't bottom until October, and October of 1998 was particularly nasty. Right now it seems like we're not done selling. But the thing about bottoms is that they seem to hit when things look their worst. So I wouldn't want to look like a dumbass and be definite here. Besides, I'm supposed to be a trader and traders have to change their positions all the time based on new information. Skilled traders know what's coming before it hits, so they anticipate instead of react. I still react a lot.

Stocks just look plain saggy right now. Gas prices are high, utility stocks are hitting new highs, techs and retail are getting hit. What else would you expect from this time of year?

But is the bull over? I very much doubt it. While it's true people are being more discriminating now, they will still pour money into the newest hype stocks. Look at recent IPOs like Sonus (SONS). They're still going nuts. The silly money is still there. Just wait until after October, and going into April. VCs still have tons of money to throw out there, and everyone's eager to make a lot. This is what I think, at least. Right now I am shorting until given a reason to turn around and hold my positions for a longer period of time than a few days.

The traders are bored, since the market typically gaps up and then leaks all day, making it pretty slow for trading the market. Most complain of summer and of CNBC, the most annoying television channel on the planet. They are waiting for a more solid market that isn't whipsawing every other day. We traders are threats to our own equity.

Eventually it will end and things will look bullish again. The leading indicators like IPOs and the trailing indicators like the economic numbers are looking good. Rally in place. The stocks just have to settle down a bit first, and it has nothing to do with valuation or popularity or whatever, as most people would have you believe. Some people just don't know what indiscriminate selling is.

For all this bullishness, you sure have to endure a lot of pain first. Luckily, I trade, so the only pain I am most likely to have is that of either boredom or of profit slippage. Investors are going through much worse, seeing their stocks fall daily. This is cyclical, and downturn should be expected. It becomes easy to lose focus of the overall historical trend. If you do that, you can really lose money. I am laying in wait of the bottom.

Can we get above 5k again? I don't know. It seems like a lot of sectors have been smoked out as the frauds they rightly deserve. Internets have been crushed, Amazon.com and CMG Inc. look gimpy. Software has gotten obliterated, like Citrix, MicroStrategy, etc. Even semiconductors and wireless stocks are getting blown out. But these two latter ones are super strong, and have actual products to sell. Combine them with fiber optics, broadband, infrastructure, biotechs, nanotech, and so on, and maybe we can come up with a new wave of silly companies to ride all the way up for the next wave of the parabola. Otherwise, we'd be looking at a shedding of cash from the Naz and a rise in the Dow, as it goes into a more optimistic outlook.

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