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.
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NASDAQ COMPOSITE
INDEX closed 1963.32

Will Nasdaq Ever Get any Rally?
Fri., Aug. 10, 2001

******************Commentary*******************
August 9. READ Page Two Nasdaq closed at 1963.32 -3.04 Thursday
On the short-term 10-day Nasdaq chart, the moving average (MA) went down to 1960 from Tuesday's 2002. Nasdaq was base-building today, as I forecasted yesterday. Thursday Nasdaq rallied four times from 1944 to 1966. Traders took Nasdaq down hard on Thursday's open but buyers were waiting at 1950 each time Nasdaq fell below that level. I have talked about the 1950 level in my newsletters for 3 months. Finally traders are believing that 1950 is a real support level. Unfortunately for long-term investors, big-time hedge funds and wealthy individual short-sellers are going to trash 1950 next week.
Where are these investment pool short-sellers and big hedge funds getting their money to short Nasdaq? Lower interest rates from the Federal Reserve are making borrowed funds cheaper for them. Who are they? The CEO's of Wall Street banks, investment firms, and the wealthiest individuals managed $8 billion in the largest of the hedge funds, Long-Term Capital Management (rescued by Alan Greenspan in 1998 with 3 emergency interest rate cuts). They are selling Nasdaq technology stocks short, and at the same time, the investment house spokespeople appear on TV urging you to buy these sinking ships.
I have written in the past two days that Nasdaq would be over-sold enough at 1950 for a profitable bounce back to the 2015 level. I also wrote when Nasdaq was 2080 last week that it would decline sharply from 2080 and then rally back to 1992. For mutual fund traders with hourly pricing, today was a turnaround day to get positioned for a rally back to a range between 1992 and 2015. For mutual fund holders with end of day pricing, stay out and be patient because any short-term rally will most likely run out of steam in a day. Relative Strength (RSI) on the short-term chart finished below the neutral 50 level, but rose steadily toward 50 in the afternoon. MACD on the short-term chart is negative, but turned higher and will quickly become positive Friday if stocks open stronger. Stochastic readings are rising fast at 65%/50%. Short-term stochastics will be very overbought if Nasdaq hits 2000. Volatility will rise next week trying to hold 1950 as support.
The strength of Thursday's afternoon rally was far less than I had expected. It means Nasdaq needs to build up more "fear" to make a bottom, but fear levels as measured by a percentage of investment newsletter writers who are bearish is just not what it should be at a bottom. Every day, another investment guru comes on CNBC and makes a "market is at the bottom" or "the worst is past -behind us" call, and then Nasdaq rallies for an hour or two. A day later Nasdaq starts going down again. You know the names, Abby Joseph Cohen, Joe Battipaglia, same ones who urged the public in at Nasdaq 5000.
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