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.21 Nasdaq Jan.15 INDEX **INTEL Review** EMAIL

NASDAQ COMPOSITE
INDEX closed 2859.15

Nasdaq rally will soon run out of steam
Wed., Jan. 24, 2001

******************Commentary*******************
Jan. 24. UNDERLINED STOCKS HAVE FREE RESEARCH REPORTS. Nasdaq is finally looking like the bull market of old, tacking on 19.4% since Jan. 8, when I forecasted a major upside rebound to long-term resistance at 2950. At around 2850, Nasdaq has 100 more points to go punctuated by daily bouts of profit-taking. Nasdaq Comp short-term stochastics (10-day chart) are falling at 50.40/77.82% even with rising stock prices today (vs falling 20.54/54.36% Jan. 19). The catalyst for a Nasdaq pullback next week will be the "fear of 3000" as the Composite trades around resistance at 2950. Last Friday, MICROSOFT gapped open $4.50 (8.1%). Stocks normally retrace large gap openings. But Microsoft ("Mr. Softee") only gave back 2 points Monday, and then today surged 3.9% to sustain its 4-day over-bought level. Readers have asked "What is over-bought?" This is when a stock trades far above its moving average and the move to there appears as a "spike" up. MSFT at $62.94 is trading $6 above support and will need to fall back soon and fill the $3 gap between $56 and $59 made in last week's 14% gain. A possible catalyst for a brief correction in MSFT could be the same reason as what has caused sudden unexplained weakness to hit Oracle, Mr. Softee's software industry competitor. Jan. 19, MSFT was distributed (large holders of the stock decided to take advantage of a price spike and sell), similar to trading in Nov. when speculation grew that the government would go "soft" on Mr. Softee when Bush became President. The heavy buying in MSFT most likely came from hedge funds selling short MSFT shares prior to options expiration. MICROSOFT (up 14% last week) and DELL (up 16% last week) are Nasdaq big-cap leaders which pulled back Monday as forecasted Jan. 21. A "Welcome to the party" offered today to much-maligned INTEL, which decisively broke to the upside out of its month-long $30 to $35 range. So much for that Lehman analyst's publicized and poorly calculated target drop of 50%. The trouble with these analysts (often seen in TV advertisements for brokerages) is that they are so caught up in numbers (like inventory, sales comparisons), they have not got a clue how to incorporate investor psychology & emotional aspects of stock trading by individuals into their myopic predictions. They love to talk about the unit shipments trends, earnings growth. None of them try to measure the value of faith in market turnarounds. If enough investors believe that stocks will go up, stocks will rise. But investors do not like uncertainty, and disappointment sprouted in the extremely poor performance of Oracle, the only Nasdaq leader not to advance at all since Jan. 8. Could Oracle guiding investors lower in earnings conference calls impact competitor Microsoft's RALLY? Nasdaq 10-day stochastics are going down yet not OVER-SOLD at 50.40/77.82% (vs 20.54/54.36% Jan. 19). Stochastics for 2-year chart look great at 78.18/27.66%, confirm a "trading" bottom. Part TWO
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