Whew! No fun today. Heres a quick update:

Tax selling, anyone?

Its amazing that none of the Talking Heads on CNBC (or other stations) have mentioned that this is Tax week: While lots of people are making contributions to their 401Ks and IRAs, they are putting that cash into money markets, not into stocks. That bodes well for the future, but is of no help now.

Do not underestimate the effect of selling for taxes. Anyone who needs a little green to pay the tax man is selling their big winners or dumping their jumbo losers. Add that to an already shaky market, and you get some more panic selling.

I think there is a strong possibility that the tax selling abates after April 15th.

The Good News / Bad News

Early this morning, it looked like we would have a nice rally. Futures were up smartly, Europe was doing OK, good earnings announcements. Hey, maybe a rebound rally.

Then Rick opened his mouth.

Rick Sherlund, a VERY influential Software analyst for Goldman Sachs, downgraded revenue expectations for Microsoft. Sherlund, who has been covering Microsoft for Goldman since MSFT went public, felt that Y2K induced softer PC sales from November to February would take 150 million in sales off of MSFT top line.

That set a negative tone. The Nasdaq was down 286 points, or 7%, with the Dow, which was up over 100 all day, sold off the last hour to close down 162. Thats a 250 point swing moderately heavy volume.

The bad news today is that we are down to within a 100 points of last Tuesdays selloff.

The good news? Well, a few things are worth mentioning. First, we held up higher than the last sell off. Higher lows are a good sign.

Second, some of the Generals were taken out and shot. Typically, the leadership are the last the give up the ghost, and when they finally do, it can be a sign of a bottom. Here are the losses for the day and week:

Leadership finally cracking?

CSCO - 5 (-7.14%)
SUNW - 7 7/8 (-8.96%)
ORCL - 4 1/4 (-5.49%)
EMC - 6 3/8 (-4.91%)
NT - 12 1/4 (-10.49%)
LU - 1 15/16 (-3.37%)
INTC - 8 7/8 (-6.79%)
MSFT - 4 1/2 (-5.37%)
AOL - 3 1/2 (-5.34%)
YHOO + 2 11/16 (+2.01%)
IBM - 7 3/8 (-6.18%)
QCOM - 12 5/16 (-8.96%)

There were only a handful of winners amongst the Nasdaq leaders: YHOO reversed its week long, 25 point slide, closing up 2%. Meanwhile, Microsoft, added to last weeks 20% drop, added additional losses of 5%.

Why is it good that the leaders are finally breaking?

They are typically the last to fall. When they finally go, its because sellers have run out of other stuff to sell. They dont want to dump their favorite holdings, but fear and gloom finally drive them to it.

Third, earnings continue to come in very strong. Out of the companies that reported so far, 2 out of 3 have beaten expectations. Thats good. AMD reported profits of $1.12 tonite, versus expectations of .58. Thats a huge upside surprise, and is good for technology issues. E*Trade was supposed to come in with a 16 cent loss; they squeaked out a small profit. That could help turn around the internet sector. Altera, Seagate, Ariba, and MBNA all also exceeded expectations.

Combine that with General Electric reporting tomorrow. GE guided analysts upwards a few weeks ago. That bodes very well.

AND, if Altera is added to the S&P500, as rumored, that could add some pop to the technology index.

Fourth, we are very oversold on the Nasdaq. There nothing that doesnt say we cannot get more oversold. But typically, when the rubber-band stretches too far in one direction, there is a bit of a snapback.

Finally, at 8:30 tomorrow is the Producer Price Index; Friday is the Consumer Price Index. A mild number in either of those indexes lowers the possibility of more Fed action, and could spark a relief rally.

Thats all for today.

--Barry Ritholtz

If you would like a free subscription to my bi-weekly market comments, please send an email to email to Ritholtz@aol.com, including the word "SUBSCRIBE" in the subject matter line. Previous market comments are archived here.

---

Copyright © 2001 Barry L. Ritholtz, All Rights Reserved worldwide. May not be copied, stored or redistributed without prior, written permission. Home

---