STOCK MARKET DIRECTION by Steve Zito published June 10, 2002
published by Steve Zito 6:00 AM EST June 10, 2002 all rights reserved
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Nasdaq Composite Index closed at 1535.48 on Friday, June 7, 2002
Nasdaq has fallen 27.08 pts. (1.7%) since my last newsletter June 4, 2002.
CNBC showcased weekly tech analysis by its former analyst John Bollinger.
This guy said net new highs ran in steady negative territory from 1970 to 1975,
according to Bollinger's work. Said, "he digs out the new highs from Barrons
every week" and also said, "his office phone is steadily ringing off the hook with
people comparing the current Bear Market to the old 1973-74 Bear Market."
I went to Bollinger's website, and his phone number is not shown at all there.
Readers asked me in November 2000 what a Republican presidential victory
meant for the economy, and I wrote then it meant recession just like 1981-82.
In fact, the current Bear Market in stocks is just like the 1981-82 Bear Market.
Today's stock market environment has no resemblance to the 1973-74 decline.
The drop in 1973 was caused by OPEC raising oil prices, Vietnam War inflation.
The 26% drop 1981-82 was caused by the Federal Reserve raising interest rates
repeatedly in 1980 and 1981, just like Alan Greenspan did in 1999 and 2000,
to kill off what the geriatric Alan Greenspan labeled "irrational exuberance."
Greenspan has been credited for 8 years of expansion during the Clinton era.
Alan Greenspan has not been blamed for two stock market crashes, and the
ensuing Bear Markets, first in 1987, when he raised rates too fast, and then
again in 2000, when he raised rates six times and killed the Bull of the 1990's.
The U.S. has the potential to maintain employment with 3.5% unemployment,
Greenspan is allowed to keep 6% of 135 million out of work to curb inflation.
This 6% rate does not include those who stopped looking out of frustration,
those working in low paid meaningless jobs, who want better types of work.
It also does not include the millions of illegal immigrants wandering in U.S. cities.
Current U.S. market declines are due to investor lack of confidence in published
financial statements. No trust in respected auditing firms like Arthur Andersen
and the loss of confidence in CEO's topped off by Lou Dobb's (CNN) defense
of Andersen auditors as completely innocent, despite partner David Duncan's
guilty plea to obstruction of justice and a criminal trial underway in Houston.
Just like their totally wrong call in October/November 1999, Merrill Lynch
has downgraded Intel just before Intel announced lowering revenue guidance
from 6% increase year over year to 3%. Not surprisingly, Intel dropped 5.00
and caused 60-pt. gap opening on Friday morning. Volume was heavy, funds
were buying and Nasdaq only stayed below 1500 for 15 minutes. Bottom?
No way to tell yet, since our trust in the Bush administration is evaporating,
which drove the Euro to a 17-month high versus the dollar. With networks
using their business hosts to rally support for racial discrimination on Arabs,
and the Bush administration planning to fingerprint all tourists entering U.S.
why would a foreigner want to change money, buy dollars, and come here?
Unless of course, a visitor wants to be a politician or a priest or a TV host.
These three job occupations are the most dishonest in today's U.S. society.
Friday Nasdaq plunged from 1555 to open 1495, down 60 points, about 4%.
It is not the start of something significant. What TV announcers and stock
market newsletter writers extolling the virtues of Friday's heavy volume,
and the almost dead-even advance-decline line do not understand is that
volume is irrelevant, for every share sold, one share is bought, so what?
And the advance-decline line is historical, it does not work as a predictor.
Despite what Warren Buffet has been preaching on CNBC for the last week,
the growth in the U.S. economy is a far better predictor of U.S. stock prices
than any other tool, and the employment data from the Bush administration
tells us the economy is improving. Ignore that automobile sales were down
10% in May, as purchase incentives were ended. Forget that mortgage rates
are at historic lows, reflecting soft demand for new housing loans. So what
if Investment Technology spending by U.S. corporations is non-existent.
Elaine Chao told us Friday 41,000 new payroll jobs were created in May.
Hamburger flippers at Burger King and insurance reps will propel recovery.
Well, the economy is improving for the upper middle class with real estate.
Poor and lower middle class are saddled with credit card debt and bad jobs.
The Federal Reserve will be forced to address an ever growing U.S. malaise,
but data released on Friday will only postpone Fed rate softening for a month.
At last Fall's lows, CNBC was urging viewers to buy GE from $38 to $39.
Maria Bartiromo reported from floor of the NYSE, "folks, GE is a steal."
Today, GE is closer to $30 where it should be. House that J. Welch built is
one built on the same accounting gimmicks that recently drove IBM to $80.
The NYSE has proposed guidelines for CEO's and corporations to achieve
independence in corporate guidance. That was supposed to be in practice
before NYSE CEO Dick Grasso began selling his new proposals last week.
Any auditing class in a university teaches that corporate Audit Committees
are meant to be duly diligent, independent of the firm's Board of Directors.
On a 10-day chart, Nasdaq is 0.0% below moving average resistance at 1536.
RSI, MACD still negative, with stochastics between neutral and over-bought.
Friday, stochastics finished at 55%/68%, rising all day from the morning drop.
Short-term, Nasdaq will go nowhere, waiting for any surprise economic catalyst.
Traders looking for signs of bottom point to the heavy volume on the rebound.
So what, Nasdaq volume is 6 to 7 times of 15 years ago due to mutual funds.
On intermediate 90-day, Nasdaq is 2.6% below its 90-day moving average at
resistance 1577. Nasdaq has been trashed for two years by same brokerages
who advised public to buy Intel at $75, Microsoft at $120, Dell over $50.
Intermediate RSI, MACD went negative 2 weeks ago as Nasdaq broke 1624.
This 1624 level will be the day-traders target for the next intermediate move.
That one or two-month "summer rally" will begin when Nasdaq crosses the
moving average, which is 1577 but trending down 9.5 points per day (0.6%).
90-day stochastics plunged from over-bought on May 17 to neutral 32%/30%.
Nasdaq rarely gets over 4% from its 90-day moving average, so a rally is due.
My readers know that I advised going to 100% cash at Nasdaq 2100 (in Jan.)
My readers also know I advised 100% commitment again at Nasdaq 1620.
That target was issued back in January 2002 when Nasdaq was over 1950.
Those investors with 6-month to one-year horizon should be investing now.
Fed will keep rates low, fiscal stimulus will cause an end-of-year boom.
Long-term Nasdaq moving average resistance is 1630. Nasdaq may now
be trying to make a bottom for a 2-year Nasdaq Tech Stock Bear Market.
Short and intermediate charts never showed Nasdaq declining below 1600
but the long-term charts did. When Nasdaq makes the genuine Bull move,
average weekly gains for the first three weeks will normally exceed 10%.
If it started next week, Nasdaq would tack on 160 points for three weeks,
and in the first month, get back just over 2000, where it started this year.
RSI, MACD negative, stochastics rising from very over-sold to 12%/32%.
Individuals waiting to jump in, pessimism levels are indicative of a bottom.
This was evidenced by the excessive readings in the VIX Index last Friday.
In addition, there has been a mid-month rally every month for last 3 months.
Technical Analysis- Intel, Microsoft, Cisco, Oracle, Worldcom, Dell, Sun
Intel closed 22.00 -5.00 (-18.5%) below moving average resistance at 26.15.
RSI, MACD negative, falling 0%/41% stochastics are forecasting more selling.
Play Intel for an over-sold bargain on any dip below 18 in the next two weeks.
Merrill Lynch Joe Osha downgraded it on Thursday, comparing it to a Japanese
real estate bubble when Osha worked in Japan for 5 years, in a CNBC interview.
Microsoft closed 51.98 +0.08 (+0.15%) above moving average support 51.80.
RSI negative, MACD positive, stochastics up all week to over-bought 82%/71%.
No one believes Microsoft will go to 40, summer PC slowdown will drag it down.
Microsoft just settled with the SEC regarding earnings management that would
put another business corporation out of business. How? Microsoft's 600 lawyers.
The U.S. Justice Dept. does not have the time nor manpower to spend on case.
Microsoft wants to monopolize your Internet Services with its dot.Net initiative.
Like Sony and Nintendo, Microsoft cut its X-box prices dramatically on May 15
and started $2 billion marketing campaign to link Microsoft X-boxes to Internet.
If you want to make money in Internet games, buy the game suppliers directly.
Cisco closed 15.73 +0.27 (+1.75%) below moving average resistance 15.80.
RSI, MACD negative, stochastics rising from over-sold to a neutral 69%/48%.
When Nasdaq made a short-term bottom on May 7, funds gapped Cisco to 16.
All because Cisco reported it managed a measly $0.10 a share in latest quarter.
Cisco had huge chart gap from 13.50 to 15.15 partially filled on Friday's open.
When funds start dumping Cisco and Microsoft, that will be the market bottom.
Oracle closed 8.36 +0.21 (+2.58%) above moving average support at 8.30.
RSI negative, MACD positive, stochastics upward to over-bought 78%/79%.
Oracle, like Microsoft, has peaked in its long-term product development cycle.
In the past year, major defections by key Oracle management damaged future.
With year-to-date IT spending growth non-existent, strictly an average stock.
The only growth project at Oracle is its bid to produce the National ID Card.
Expect the ID contract to go to Sun Microsystems or some other competitor.
That is what Larry Ellison gets for supporting the Clinton campaigns in past.
Worldcom closed 1.69 +0.22 (+14.97%) above moving average support 1.60.
RSI, MACD positive, stochastics rising from neutral to over-bought 80%/39%.
Will this be another bankruptcy? Maybe not. Classic case of all mutual funds
dumping Intel Friday, with no better place to put the fresh cash than WCOM.
Like Global Crossing and Metromedia FN, mutual funds sold it since January.
Removed from S&P 500 Index in May, proof "buy and hold" does not work.
Announced its tracking stock, MCI, will be recombined with parent this July.
Nortel joined it under $2, Lucent fell below $4, Worldcom is a dog with fleas.
Dell closed 26.28 -0.19 (-0.72%) below moving average resistance 26.60.
RSI, MACD negative, stochastics meandering around a neutral 55%/49%.
Two years ago, CNBC paraded guests daily recommending Dell over 50.
Biggest CNBC bull 2 years ago was Lehman's Dan Niles strong buy at 53.
Niles said buy Compaq at 22 (April 2001), sell Intel at 19 (Sept. 21, 2001).
This Lehman analyst was laughing on CNBC when he advised selling Intel.
Niles downgrades on Friday, May 31 were blamed for starting Nasdaq's slide.
Sun closed 6.42 -0.21 (-3.17%) below moving average resistance at 6.70.
RSI, MACD negative, stochastics neutral to slightly over-sold at 22%/36%.
Sun makes servers for the Internet infrastructure. With Bush's team in and
Clinton's ideas trashed, oil firms get the bucks, Internet dot.com goes broke.
Government slapped Microsoft on wrists for its monopoly, Sun gets shafted.
Still, Sun has a $billion lawsuit vs. Microsoft with its 600 corporate lawyers.
Thanks for reading Stock Market Direction by Steve Zito.
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Newsletter June 4
Nasdaq May 24