STOCK MARKET DIRECTION Email Edition for August 13, 2002
published by Steve Zito 6:00 AM EST August 13, 2002. All rights reserved.

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Nasdaq Composite Index closed at 1306.84 +0.72 on Monday, Aug. 12, 2002
Nasdaq has fallen 9.68 (-0.7%) since my Email Newsletter August 9, 2002.

On the 10-day chart, Nasdaq is 0.4% above its moving average support at 1302.
RSI remained positive, MACD negative, changing direction last Tuesday, Aug. 6.
Short-term, Nasdaq rose sharply 6% from 2 PM Wednesday to Thursday's close.
Why? Every month, there is a rally in the week prior to options expiration Friday.
Last week, Nasdaq rose 9.1% from low to high, then stopped moving last 2 days.
I have forecasted the volatility would drop quickly going deeper into August, this
is vacation month. Investors did not even react to U.S. Airways bankruptcy, and
trading volume Monday was the lightest of the year. The best time to buy stocks
and stock options is when markets are asleep, not when they are volatile as in July.

Options premiums do come down in dull, trendless markets. Wait for VIX Index
to fall back below 22, then focus on six-month call options on the semiconductors,
semiconductor Index (SOX), biotech Index (BTK), and gold stock Index (XAU).
Dow Jones has been stealing all the headlines with a 700 point gain in only 3 days,
which can be traced entirely to Brazil's $30 billion bailout by O'Neill and the IMF.
So much for the BS on the "free markets" handed out by the Bush administration.
Since the Dow is loaded with banks (Citigroup, J.P. Morgan) with exposure to
Latin America, Treasury Sec. O'Neill and the IMF's $30 billion Christmas present
to Brazil, 3 times what they asked, sent those large banks and the Dow into orbit.

Nasdaq short-term stochastics stay over-bought at 80%/86%, near-term is down.
Expect near-term pullback to Nasdaq 1291, to reduce the short-term over-bought.

On intermediate 90-day, Nasdaq is 1.1% above moving average support at 1292.
90-day RSI negative, MACD positive as a downtrend since May 28 is still resting.
There has been a mid-month rally for one week every month due to index options.
That is over, starting with a gap open on Tuesday, finishing up on Thursday's close.
From last Monday's close at 1206 to Thursday at 1316, the total gain was at 9.1%.
The best two mid-month rallies in April and May averaged 7.8% gains for a week.
Same 8.3% from June 14 Nasdaq's opening low at 1445 to June 18's high at 1566.

These short rallies were solely related to expiring stock and index options arbitrage.
How do I know? I interviewed for jobs with the hedge arbitragers who told me of it.
With options expiring on Friday, the likelihood of a small decline to support is high.
90-day stochastics rose from last Monday's 0%/19% to over-bought at 82%/90%.
The intermediate stochastics are forecasting immediate pullback just to MA 1292.

Long-term Nasdaq moving average resistance is 1345. Nasdaq's declining two-year
moving average close to the lowest levels during Nasdaq's 25-month Bear Market.
Treasury Sec. O'Neill says the U.S. economy is recovering. Bush says it's strong.
If the two most influential leaders keep misleading the public, no one will buy stocks.
I wrote one year ago in August the U.S. was in recession and unemployment rising.
No one agreed with me. Now U.S. economic data supports my previous viewpoints.

Tuesday Goldman, Deutsche Bank, Lehman all called for quick Fed interest cuts.
Why? Take Goldman, which gave 82% of its campaign contributions to Democrats.
Goldman has not been issuing a lot of IPO's lately since the Bush team took office.
Recently Goldman backed out of a secondary offering for Accenture priced at $20.
Accenture went ahead and issued their stock, and ACN has just fallen 17.8% in price.
Goldman wants Democrats in supporting Silicon Valley which issues profitable IPO's.

Deutsche Bank wants stronger U.S. dollar for export or die Germany to gain
market share. The U.S. dollar has been very weak this year on loss of confidence
in Bush economic policies which only benefit the wealthy. Germany wants to sell
exports from BMW's to pharmaceuticals to SAP software, price based in dollars.
Lehman is also connected to high-tech, an area which has died as Bush diverted
government spending to defense (Lockheed, Raytheon) and the golfing industry.

The August 14 SEC deadline for corporate CEO financial statement verifications
is approaching, and a substantial percentage of large firms will not make that date.
Does the market care? No, but small investors do. The number of viewers in an
Aug. 12 CNN MoneyLine poll who believe economy will be worse next year, 70%.
RSI, MACD negative, rising stochastics are neutral at 45%/37%, becoming weak.

Technical Analysis- Intel, AMD, Microsoft, Cisco, Oracle, Dell, Sun, Accenture

Definition, if the stock closed above its 90-day moving average, the MA is support.
If the stock closed below the 90-day moving average, the MA becomes resistance.

Intel closed 17.53 -0.33 (-1.9%) below its moving average resistance at 17.60.
RSI negative, MACD positive, stochastics from over-bought to neutral at 79%/55%.
Aug. 2, Intel closed under 17 for only 3rd time in 30 trading days, always recovering.
Aug. 12, Barrons downgraded Intel and AMAT, praised Taiwan Semi (TSM).
Article ignored China's threat Aug. 5 to invade Taiwan, home of Taiwan Semi (TSM).
What else is misleading? TSM supplies motherboards to Intel. When Intel gets cold,
TSM catches pneumonia. The Barrons cover story spokesperson on CNBC Friday
from California demonstrated his lack of knowledge about our semiconductor industry.
In June, Intel at 17.54 and AMD at 6.99 on my recommended list for tech stocks.
Why? They are leaders in what will be the best performing stock group in any recovery.
With volatility near records (VIX, VIXN), the best call option values are Intel, AMD.
AMD closed at 8.83 unchanged on Monday. AMAT closed at 13.58 -0.28 (-2.0%).

Please note subscribers long Intel at 17.54 on July 2 were stopped out with a gain.
Subscribers back into Intel at 17.54 on Wed. Aug. 7, with a stop loss at 5% (16.67).
AMDAB calls closed 0.75 Friday, August 2 (at my recommended entry level price).
AMD hit low of 7.01 Aug. 2 and rose to 8.83 since, AMDAB doubled up to 1.50.
AMD may retest recent lows, I recommend selling 1/2 of AMDAB to recover cost.
Competitor AMD is operating at the B/E level, should be profitable in the 4th Qtr.

Microsoft closed 48.47 +0.35 (+0.7%) above moving average support 47.50.
RSI and MACD positive, stochastics remain extremely over-bought at 82%/89%.
Barrons front cover article included Microsoft and Cisco as 2 of 20 stocks to buy.
I have been very negative on both, these firms have billions in unexpensed options.
Microsoft has given options to every employee except MSFT temporary workers.
Microsoft records no expense when granting these options and keeps cost hidden.
Of great importance is the lack of dominant position in anything except Windows.
Microsoft Network is error prone, lacks security, crashes PC's. I see it every day.
Microsoft is relying on its X-box linked dot.Net initiative to save sagging growth.
So far, it just is not happening. Gates has no legal monopoly on his Internet games.
If you want big gains, buy Electronic Arts, Activision, and THQ, not Microsoft.

Cisco closed 13.41 +0.29 (+2.2%) above moving average support at 12.60.
RSI, MACD positive, stochastics soared to maximum over-bought at 99%/92%.
Cisco has a ton of overhead supply in May's previous chart gap 13.50 to 15.15.
Why still bearish? Cisco has $1.69 billion unexpensed outstanding stock options.
Cisco still has to certify clean financial statements by its CEO John Chambers.
Barrons front page article included Cisco with Microsoft as 2 of 20 great stocks.
Cisco is the most widely owned and most overvalued stock on Nasdaq, avoid it.
Suffers from poor management and a commodity business in a stagnant market.
Announced a share buyback using $8 billion of Cisco's $21 billion cash. That is
about 592 million shares. What is Cisco going to do with all that stock? Useless.
Cisco grew by acquiring small competitors. Now they are acquiring themself.

Oracle closed 9.73 -0.08 (-0.8%) above its moving average support at 9.68.
RSI, MACD positive, stochastics fell from over-bought to neutral at 50%/70%.
Oracle was mentioned in Barrons as a buy, one of 20 tech stocks. Best it could
do is hit 10 Monday and back off. Options, a ton of August 10 calls outstanding.
Oracle had a nice run lately as Larry Ellison is one rare CEO to certify financials.
Oracle did not break 10.40 in last Friday's reversal, so subscribers did not short it.
Note: Oracle is showing classic pennant formation which precedes major moves.
If closing at 10 next Friday, could be candidate for bear spread: long 2 puts, 1 call.

Dell closed 25.90 +0.30 (+1.2%) above its moving average support at 25.05.
RSI, MACD positive, stochastics remain extremely over-bought at 96%/95%.
I have recommended shorting Dell at 28 for 1.5 years, and was right about that.
Barrons rated Dell a buy, of 20 tech stocks including Microsoft, Cisco, Oracle.
In the past few years, Dell entered new markets to compete with Compaq's Ipaq.
Dell failed miserably in that Internet devices market, pulling out after 2 months.
Recently, Dell announced entry in the handheld computer market against Palm.
Dell is good at one thing, making latest its PC's marketed to kids and companies.
Watch the reaction in Palm's stock in the next two weeks on Dell's competition.
Volume in Palm (price under 1.00) had been extremely heavy from August 5 to 8.
In fact, buying Palm at $1 is buying a long-term put option betting on Dell failure.

Sun closed 4.12 -0.05 (-1.2%) above 90-day moving average support at 4.02.
RSI negative, MACD positive, stochastics remain very over-bought at 75%/81%.
Sun hit my target price of 4.99 last month, rallied over 6.00 in one week, then was
downgraded by four brokerages on July 19, and subscribers were stopped at 4.72.
Lowered a new target price to 3.49 on July 20, and Sun Micro made a bottom there.
No longer reacting to bad news, Sun appears to have the worst case priced into it.
Barrons downgraded Intel and Sun in its weekend article, had little effect Monday.

Accenture closed 16.44 -0.08 (-0.5%) above moving average support 16.42.
RSI negative, MACD positive, stochastics remain very over-bought at 75%/80%.
ACN hit my March target of 13.99 last month, which I had just lowered to 11.99
on Arthur Andersen's trial conviction. On July 26, I lowered my target again on
California state pension plans to black-list the former Andersen consulting division
for incorporating in Bermuda to escape U.S. taxation laws, reporting requirements.
Congressman McDermott described ACN as "unpatriotic" on CNN Aug. 1, and
wants Congress to go after these companies with their headquarters in Bermuda.
Since Congress is in vacation recess, no action against Accenture is pending now.

Great candidate for November put options. I like the ACNWV Nov 12.5 (Amex).
Bid 0.40 for it. This put option has not traded since I recommended taking position.

Thanks for reading Stock Market Direction by Steve Zito.
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