STOCK MARKET DIRECTION Email Edition for June 17, 2002
published by Steve Zito 6:00 AM EST June 17, 2002 all rights reserved

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Nasdaq Composite Index closed at 1504.74 on Friday, June 14, 2002
Nasdaq has fallen 30.74 (2.0%) since my last newsletter June 10, 2002.
Greenspan has been credited for 8 years of expansion during the Clinton era.
Alan Greenspan has not been blamed for two stock market crashes, and the
ensuing Bear Markets, first in 1987, when he raised rates too fast, and then
again in 2000, when he raised rates six times and killed the Bull of the 1990's.
The U.S. has the potential to maintain high growth with 3.5% unemployment, yet
Greenspan is allowed to keep 5.8% of 135 million out of work to curb inflation.
This 5.8% rate does not include those who stopped looking out of frustration,
those working in low paid meaningless jobs, who want better. This is freedom.

Friday Nasdaq plunged from 1495 to open 1445, down 50 points, about 3.3%.
What TV announcers and stock market newsletter writers extolling the virtues
of Friday's heavy volume, and solid rallies back to finish higher, miss in analysis
is the public's unwillingness to be the first to step up and buy technology stocks.
It is going to happen, maybe soon, and when it does, most will miss the first 20%.
Volume is irrelevant, for every share sold, one share is bought, so it means little.
And the advance-decline line is historical, it does not work as a predictor at all.
The best way to catch the bottom is to buy the worst performing groups which
have no more downside, and wait for the strong stocks like Microsoft to crack.
When funds start dumping Microsoft and Cisco like they have Oracle and Sun,
the bottom will be in place. After all, these four are in similar lines of business.

Warren Buffet was interviewed repeatedly on CNBC last week, and he stated
that historically stock prices have had little relational movement to our economy.
I do not know what charts that guy has studied, but pick up any copy of Nobel
Prize winner Paul Samuelson's classic Intro to Economics and find the charts
comparing the increase in U.S. stock prices to the growth in the U.S. economy
over the history of the Industrial Age. It is easy to see the 10% annual growth
in NYSE stocks is directly related to long-term 3% annual growth in U.S. GDP.
Warren Buffet should stay in Omaha, eat a beefsteak, and sit on a front porch.
He knows how to buy insurance companies and that is extent of his expertise.
The growth in the U.S. economy is by far the best predictor of US stock prices.

Well, the U.S. economy is improving for the upper middle class with real estate.
And that is all that really matters, because poor people are never buying stocks.
The poor and lower middle class are saddled with credit card debt and bad jobs.
Even if they work hard, they have large families, shorter lifespans, less wealth.
The Federal Reserve will be forced to address an ever growing U.S. malaise
in the same manner the Bush administration sent out $300 checks to workers.
Keep in mind those $300 checks were not sent to the unemployed and indigent.
The price of Gold in past months is forecasting continued low Fed interest rates.

On a 10-day chart, Nasdaq is 0.4% above its moving average support at 1498.
RSI is still negative, MACD positive with stochastics extremely over-bought.
Friday, stochastics finished at 92%/90%, rising all day from the morning drop.
Short-term, Nasdaq will go down, waiting for any surprise economic catalyst.
Traders looking for signs of bottom point to the heavy volume on the rebound.
So what, Nasdaq volume is 6 to 7 times of 15 years ago due to mutual funds.
Using their volume logic, Nasday should be 7 times higher than 1000 in 1987.
Volume is a myth propagated by stock brokerages to generate trades.
Watch closely for morning sell-off followed by an attempt to crack the 1520
level which is a line in the sand for short-sellers which would trigger buying.

On intermediate 90-day, Nasdaq is 1.1% below its 90-day moving average at
resistance 1522. Intermediate 90-day RSI, MACD went negative 3 weeks ago.
There has been a mid-month rally for one week every month for the last three.
The last 2 mid-month rallies in April and May averaged 7.8% gains in a week.
These rallies are entirely related to arbitrage on expiring stock index options.
June's mid-month rally could turn into something more with a "summer rally"
beginning if and when Nasdaq crosses intermediate 90-day moving average,
trending down for 20 trading days at 9.8 points per day (0.7%) since May 20.
Bullish 90-day stochastics are now rising to highest June levels at 52%/40%.
Expect options rally Monday to follow larger move on open over 1522.

Long-term Nasdaq moving average resistance is 1600. Nasdaq longer-term
moving average is now at the lowest levels for this 22-month Bear Market.
Nasdaq has been trashed for two years by the same Wall Street brokerages
who advised public to buy Intel at $75, Microsoft at $120, Cisco at $60.
Do you remember Joe Battipaglia (Gruntal VP) touting JDSU over $150?
That was classic sign of a top as Battipaglia preached 10,000 for Nasdaq.
Now brokerages Merrill, Lehman, Goldman, Salomon are yelling "sell."
This is classic sign of a tech bottom. When Nasdaq makes a Bull breakout,
average weekly gains for the first three weeks should normally exceed 10%.
If it started next week, Nasdaq would tack on 160 points for three weeks,
and in the first month, get back close to 2000, where it started year 2002.
RSI, MACD negative, stochastics rising from very over-sold to 22%/23%.

Technical Analysis- Intel, Microsoft, Cisco, Oracle, Worldcom, Dell, Sun

Intel closed 21.28 +0.17 (+0.8%) below moving average resistance at 22.40.
RSI, MACD negative, rising 55%/41% stochastics are forecasting consolidation.
Play Intel for an over-sold bargain on any dip below 18 in the next two months.
Merrill Lynch Joe Osha downgraded it on June 13, comparing it to a Japanese
real estate bubble when Osha worked in Japan for 5 years, in a CNBC interview.

Microsoft closed 55.25 +1.03 (+1.9%) above moving average support 53.80.
RSI, MACD positive, stochastics very over-bought at 90%/85% for past 5 days.
Microsoft just settled with the SEC regarding earnings management that would
put another business corporation out of business. How? Microsoft's 600 lawyers.
The U.S. Justice Dept. does not have the time nor manpower to spend on case.
Like Sony and Nintendo, Microsoft cut its X-box prices dramatically on May 15
and started $2 billion marketing campaign to link Microsoft X-boxes to Internet.
If you want to make money in Internet games, buy the game suppliers directly.
Microsoft advertising it has 70 game titles available for the X-box from vendors.

Cisco closed 14.30 -0.59 (-4.0%) below moving average resistance 15.10.
RSI, MACD negative, stochastics plunging to deeply over-sold at 4%/24%.
When Nasdaq made a short-term bottom on May 7, funds gapped Cisco to 16.
Cisco had huge chart gap from 13.50 to 15.15 partially left from the May 7 rise.
When funds start dumping Cisco and Microsoft, that will be the market bottom.

Oracle closed 8.57 +0.31 (+3.8%) above moving average support at 8.38.
RSI negative, MACD positive, stochastics upward to over-bought 98%/72%.
Oracle, like Microsoft, has peaked in its long-term product development cycle.
In the past year, major defections by key Oracle management damaged future.
With year-to-date IT spending growth non-existent, strictly an average stock.
That is what Larry Ellison gets for supporting the Clinton campaigns in past.

Worldcom closed 1.59 -0.06 (-3.6%) below moving average resistance 1.60.
RSI, MACD positive, stochastics falling to neutral from over-bought 50%/59%.
Like Global Crossing and Metromedia FN, mutual funds dumped it all year.
Surprisingly, French funds have bought about 10% on June 7 turnaround.
Removed from S&P 500 Index in May, proof "buy and hold" does not work.
Announced its tracking stock, MCI, will be recombined with parent this July.

Dell closed 25.72 -0.33 (-1.3%) below moving average resistance 26.20.
RSI, MACD negative, stochastics in neutral for weeks now at 35%/62%.
Two years ago, CNBC paraded guests daily recommending Dell over 50.
Biggest CNBC bull 2 years ago was Lehman's Dan Niles (strong buy at 53).
Niles touted Compaq at 22 a share a year ago, advised sell Intel at 19 too.
Question, why does anyone listen to him? Niles worked for Compaq 8 years.

Sun closed 6.14 +0.01 (+0.2%) below moving average resistance at 6.30.
RSI, MACD negative, stochastics rising from slightly over-sold to 30%/22%.
Sun makes servers for the Internet infrastructure. With Bush's team in and
Clinton's ideas trashed, oil firms get the bucks, Internet dot.com goes broke.
Government slapped Microsoft on wrists for its monopoly, Sun gets shafted.
Dell wants to get into Sun's line of business, and Sun is not located in Texas.

Thanks for reading Stock Market Direction by Steve Zito.
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