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. Go To Page 3 Who are investment gurus? Those who said Nasdaq is going higher a year ago, when it was well above 5000. You know them all: Abby Joseph Cohen, Joe Battipaglia and Tom Galvin.
Nasdaq stocks are still overvalued, whether measured by the Price to Earnings (P/E) or Price to Sales (PSR). For example, Cisco Systems is trading at an excessive Price to Earnings ratio of 229. Cisco reported that it earned $0.02 per share in the last 3 months. It is barely at the breakeven level, and Cisco trades at $18. Priceline (PCLN) made $0.05 a share in the last quarter, and PCLN stock trades at $8. Priceline.com earnings are rising, Cisco's earnings are falling. Either Cisco Systems should be trading less than $8, or Priceline should be trading at $18. Overvaluation of technology stocks in mutual funds is the primary reason well-known Nasdaq stocks like Cisco Systems are heading down despite pundits, mutual fund managers urging public to buy.
On the intermediate chart Nasdaq closed quite a bit below its moving average resistance at 2000. RSI is negative 45, MACD still negative, but intermediate stochastics, after plunging off the bottom of charts, rebounded sharply as I forecasted to 55%/20%. I forecasted a volatile day on Wednesday for Nasdaq. It did. Volatility eased on Thursday, but with stock option expiration a week from today, I expect volatility to sharply increase as hedge funds and vulture capitalists jockey for position with large blocks of tech stocks. Hey-ever seen a naked call?
Long-term Nasdaq moving average resistance remains at 2080. Since this is a long term measure, it just does not change quickly. Nasdaq should retest the April 2001 lows and rebound off 1760 after August stock options expire on Friday, August 17. True bear market bottoms are made by retesting lows and doing that successfully. At Nasdaq 2024, I advised short-term traders to go 30% long at Nasdaq 1950, and position in September call options on beaten-up technology stocks. I especially like Ericsson LM Sept. 5, Worldcom Sept. 15 call options.
The telecommunications equipment and infrastructure industry was the worst performing stock group in the 2nd quarter, and the worst performing groups tend to be the best performing groups in the next quarter, no matter what earnings are reported. Long-term Nasdaq RSI remains negative 45, MACD positive on 1950 support, stochastics are negative and falling at 20%/50%. The time to buy stocks for the long term is when long-term stochastics are rock bottom, such as 8%/15% level which I discussed in my April 8 commentary. Inflation reports coming in the next few days may dampen hopes for more interest rate cuts, with government reports of GDP growth continuing to decline.
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