Steve Zito (MS Finance) is a member of the HTML Writers Guild
using economic and technical analysis to forecast 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 May 3 DOW May 5 INDEX Market Data INTEL Review

NASDAQ COMPOSITE
INDEX closed 3585

Seven of 9 indicators are NEGATIVE
Tue. May 9, 2000

******************Commentary*******************
May 9. The Nasdaq Composite has not moved in a week, and has no direction. This will continue until the U.S. Federal Reserve lowers interest rates. Long term bond yields have gone higher, offering a very competitive yield of 6.21%. The 2-yr. T-notes are at 6.85%, higher than the 30-yr. T-bonds. The investment house strategists touting technology are noticeably absent from cable TV financial news, not wanting to explain their bad stock market calls last month when the Nasdaq Comp was above 4400. How many made poor stock picks earlier this year, all technology shares boosted in the current bubble. When you see these advisors on TV, remember, they don't know any more than the man in the street, and more importantly, it is not their own money at risk, these gurus hustle at brokerages to generate commission revenue on transactions. The Nasdaq Comp is below the 20-period exponential moving average on the 5-, 15-, 30-, 60-minute, daily, and weekly charts. Intel broke down March 28, forecasted on March 23. Intel is in a trading range of 110 to 130 which I calculated on April 26. Today at 117, Intel is extremely overvalued with a P/E-price/earnings ratio of 50.5, facing new competition from AMD, about to break recent lows at 110. Microsoft looks like a bargain compared to Intel, with a lower P/E of 40.8. This stock may move up next month after the judge sentences the company for antitrust violations. MSFT has not traded close to its 20-day moving average in the last 5 weeks, suffering a steady decline. Cisco MACD and stochastics just went negative again. Avoid this stock until it hits 45. With 33.3% more shares outstanding than MSFT, CSCO sports an astronomical P/E-price/earnings ratio of 174.8. Oracle Corp has abnormally high P/E at 112.5. Have investors lost their mind? No, the economy is strong, new naive investors are arriving every day, and older investors are taking more risks. They invest in the right companies, the economy is great, they just should have bought these stocks 5 years ago when the P/E's were reasonable. Dell also has a super P/E of 76.6, which is 3 times above normal for a computer distributor. MCI WCOM is the only member of the big six Nasdaq leaders with a normal P/E of 27.8, it is still trading above support. I have added 50 June 55 calls on MCI WCOM at 1/8 to the Model Portfolio. This is a low cost hedge on a big surprise upside move in the Nasdaq leaders in the next 2 weeks. Nasdaq should test the 3200 level within seven days, and FAIL!. On April 11, I predicted Nasdaq would trade in an 11% range from 3650, which it has. It hit 3230 at April 17's low, rebounded over 800 points, only to fall 450 points. Why did it turn at 3230? The index bounced off the 20-month moving average, fueled by day traders who believe that stocks with P/E ratios over 70 are a bargain. Remember, these are the traders who took Internet stocks to levels 100% higher than today.
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