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 on investment decisions.
Nasdaq May 13 Nasdaq Apr.22 Index DELL Report Subscriptions

NASDAQ COMPOSITE
INDEX closed 2198.88

Nasdaq irrationally exuberant
Sun., May 20, 2001

******************Commentary*******************
May 20. While it may appear that Nasdaq is topping out at 2200 again Nasdaq is less over-bought than before the May 15 Federal Reserve announcement. Why? Because Nasdaq big-cap favorites have not participated in the past week. Microsoft and Dell are unable to lead this market. Blame XP product delays and personal computer sales slowdowns. Nasdaq up 1.6% since Apr. 20 but INTEL (down 11.3%), ORACLE (down 17.6%), WCOM (down 7.1%), DELL (down 17.7%) have fallen sharply since then and never recovered in the last week. Yet Sun Micro and especially CISCO have prospered. Since Apr. 6, CISCO gained 48.3% from Nasdaq's low, last week continued to gain despite Lehman Analyst Dan Niles downgrading networking stocks. Nasdaq is close to a breakout to the upside Monday, forecasted by short-term MACD and stochastics at 79.59/52.05% (vs 23.41/13.05%). This is reflective of the abrupt shift in investor sentiment after broker Merrill Lynch predicted Tuesday there will be more interest rate cuts. A Wednesday morning sell-off suddenly changed direction when all brokers joined ML. Intermediate (90-day Nasdaq chart) RSI is bullish, stochastics rising at 89.34/55.94% (vs plunging 13.06/67.62%). Long-term (2-yr Nasdaq chart) moving average remained above support for a third week. MACD is still improving, RSI is bullish, but worrisome stochastics now more over-bought at 94.49/42.40% (vs 78.16/33.08%). Nasdaq may be about to break out to 2500-2700, but its longer-term stochastics indicate the market is vulnerable to an end-of-rally sell-off two to three weeks from now when 2nd Quarter earning reports begin. INTEL bounced nicely off the $26 level, and closed right on support. MACD remains very neutral but stochastics have turned positive at 42.64/33.11% (vs very over-sold 3.18/55.56%). INTEL is range-bound. MICROSOFT closed below resistance as MACD, RSI are negative, bearish stochastics are still falling at 17.14/46.43% (vs 39.56/73.18%). Money is better invested in CISCO with both MACD, RSI positive, stochastics rising 71.63/64.44% (vs 61.00/72.85%). Cisco upside $23. ORACLE completed a $21 top long ago. Oracle MACD, RSI are very negative, stochastics rising at 39.52/37.02% (vs falling 16.10/33.93%). WORLDCOM also has negative MACD, RSI, but stochastics are still neutral at 27.03/25.54% (vs neutral 18.41/17.53%). DELL MACD stays negative but RSI is neutral, stochastics weaker again at 40.25/31.14% (vs plunging 13.38/19.34%). CPQ makes better computers than DELL, and COMPAQ has lost 30% since April. Avoid PC stocks. Sun Micro has very bullish MACD, RSI, as stochastics approaching overbought at 89.10/55.07% (vs 47.56/66.61%). CISCO up 48% since Apr. 6, is the lowest risk of the big-cap leaders. When Nasdaq's rally ends around 2600, diversify into GOLD, RESOURCE, and CANADIAN STOCKS!
Japan ADRs have noticeably outperformed for nine weeks
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