Steve Zito, MS Fin./BS Econ. Wharton School, HTML Writers Guild
uses economic and technical analysis to forecast the direction of the stock market. The views in this newsletter are opinions only, and should not be relied upon as advice for investment decisions.
Nasdaq Jan.15 Nasdaq Jan. 8 INDEX **INTEL Review** EMAIL

NASDAQ COMPOSITE
INDEX closed 2770.38

Nasdaq to fall-1 day of profit-taking
Sun., Jan. 21, 2001

******************Commentary*******************
Jan. 21. Nasdaq had 2nd week of gains, 5.5% added since Jan. 12, achieving 68% of a forecasted rise to long-term moving average resistance around 2950. This surge is not consecutive up days. It will be punctuated with profit-taking. Monday should see a day of serious selling. Nasdaq short-term stochastics (10-day short-term Composite Index) are falling sharply at 20.54/54.36% (compared to similar easing 33.45/64.16% on Jan. 12). The same type of selling seen last Tuesday should occur this Monday. The biggest catalyst for a Nasdaq pullback might be MICROSOFT which gapped open up $4.50 (8.1%) on Friday. Stocks normally retrace large gap openings. MICROSOFT was distributed Friday on volume of 105 million shares, similar to the trading last November when Bush became President. This buying most likely came from hedge funds and large block sellers of MSFT call options who did not own underlying shares on Friday morning (options expiration). Hence, the 8.1% MSFT gap opening. How much will MICROSOFT pull back? Enough for me to sell the MSFT position held in the Model Portfolio at $61. Anxious to buy back at $56 this week and I expect buying pressure to push the Nasdaq higher LATER this week, but only AFTER Monday's profit-taking due to UNWINDING of stock options expiration arbitrage from Friday. Several technical indicators are clearly forecasting a sell-off now. MICROSOFT (up 14% on the week) and DELL (up 16% on the week) are big-cap leaders which had massive gains Friday morning on gap openings. Expect BOTH to pull back. In addition, Cisco and Worldcom completely broke down Friday. That leaves INTEL, stuck in a $30-$35 range, and Oracle as the only Nasdaq leaders left to keep advancing at the start of the week. Nasdaq 10-day stochastics are heading down but not yet OVER-SOLD at 20.54/54.36% (vs 33.45/64.16% Jan. 12). Stochastics for the long-term 2-year chart confirm a "trading" bottom in Nasdaq was made at 2250. On Friday, INTEL tacked on 90% of 5% weekly gain due to expiring options arbitrage, but chart stochastics faded 64.58/81.84% (vs 13.16/35.27% Jan. 12). A bullish Intel MACD went to 0.50 (from 0.40) as Intel is in a trading range $30-$35. With heavy resistance at $35, a failure by Intel last week to break out to the upside along with a 5.5% Nasdaq rally foretells another 3 months of SIDEWAYS consolidation before an eventual move to $50. MICROSOFT stochastics soared to an over-bought 92.71/91.61% (vs a falling 35.56/50.01% Jan. 12). MSFT 33.87 P/E does not reflect future earnings gains from cost reductions at a time when Windows 2000 revenue is expanding. Expect management to fuel continued stock price gains by announcing partnerships and new products. Cisco has a RISKY BUSINESS P/E of 99.5, stochastics plunging at 5.74/53.69% (vs a diving 25.00/71.55% Jan. 12). Investors are using Nasdaq rallies to get out of Cisco and it will go to $35, even while Nasdaq rallies toward 3000. Money flows to high "expected" returns, and big returns in Cisco are not highly expected. Oracle hit resistance at $33 for the 7th time in 6 weeks, and finally broke through with great rising stochastics at 85.71/78.06% (vs a weakening 15.63/42.87% Jan. 12). While over-bought conditions will cap further advances until earnings are reported, the two-month "consolidation" around $30 seems to have ended. Worldcom stochastics are pathetic at 23.33/39.75% (vs 16.67/62.45% Jan. 12). Last week, I am glad I had my $22 in DELL, though profit-taking trimmed the stochastics to 63.41/84.82% (vs 26.98/44.53% Jan. 12). Any pullback Monday presents great buying opportunity. DELL has a most powerful chart on Nasdaq, accelerating momentum set to lure day traders into the stock at much higher prices NEXT MONTH. DELL benefits on a rising Euro (25% of sales) vs the US dollar too.
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