All I hear nowadays is talk of a bottom. CNBC has cheerleaded the bottom call for weeks now and were all lathered up yesterday when the NASDAQ rallied off the lows in the AM to close only slightly down. Today we had an utter orgy of nonstop buying by late mover mutual funds. Its been less than a week in which we've had 2 of the biggest point gain days in NASDAQ history. There has to be some meaning in that sentence. I don't think many people would have predicted 1, much less 2 7+% NASDAQ up days in less than a week.

One year ago, the NASDAQ index was at 2688. Today, it finished at 3418. A one year return of 27%. Sound reasonable? On 10/19/99, the fundamentals of the tech industry were much brighter. Growth was strong and accelerating, the dotcoms were going to rule the world, everyone needed to buy wireless and telecom stocks, and so on. Today, we have dotcoms that finally realize that losing money is not a good business model, the wireless stocks are suffering from overestimating the demand for cellphones, and the DSL/telcos are dealing with credit problems and cost issues. Yet we are still 27% higher from year ago levels. Oil back then was $22/barrel. Now its $34/barrel. I won't go on about the euro since I think its been overblown. Interest rates are higher. With all the IPOs and insider unlocks, the supply of stocks is much greater. A year ago, the NASDAQ was a nimble overvalued index with demand exceeding supply. The demand has increased, but the supply has increased even more. All those record baby boomer inflows this year have resulted in a NASDAQ that is actually down ~15% on the year. We have hit critical mass. There is just too much equity in relation to investment dollars now. The lift we've seen in past years is history. The stock market is now a flabby, bloated pig with equity supply slapping back demand at every bounce attempt.

Think of the NASDAQ as one big Ponzi scheme. You always need a bigger supply of fools to buy up your overpriced junk since that's the only way stocks go higher. But an interesting thing happened this year. Supply increased at an unrivaled rate. IPOs were being shoved down greedy investor's throats without regard for quality. If it was internet related, buy it. With the bubble straining in April and May, fundamentals mattered again. That's why you saw all those inuts lose 80-95% off their highs. That's why tech stocks fared worse than Dow stocks. But there is a clue as to why there probably is more wreckage ahead. In spite of all these fundamental shifts, investors still believe they can get those 30% tech stock returns every year and the Santa Claus rally, Abby Cohen cheerleading, etc. Sentiment has hardly budged. The calls for a bottom easily outnumber the calls for a bear market. That was not the case 2 years ago when we rocketed higher. Even compared to last year, the sentiment is much more positive. The NASDAQ ride from November to March was so profitable for those long high tech that people will always have that in the back of their minds when they purchase these lottery tickets. If I could make money then, I can make money again doing the same thing. Or so the momo thinking goes.