STOCK MARKET DIRECTION Email Edition for August 15, 2002
published by Steve Zito 4:00 AM EST August 15, 2002. All rights reserved.

Is Nasdaq ready to break above its 2-year moving average as institutions
begin shifting their investment portfolios from Bonds to Stocks?
With the 10-year note hitting an all-time low yield of 3.92%,
Asset Allocation could be the key to market moves.

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Nasdaq Composite Index closed 1334.30 +65.02 on Wednesday, August 14, 2002
Nasdaq has surged 27.46 (+2.1%) since my Email Newsletter August 13, 2002.

On the 10-day chart, Nasdaq is 2.2% above its moving average support at 1306.
RSI remained positive, MACD turned positive, showing a continuation of change
from an old downtrend to a new uptrend which began Aug. 6 at Nasdaq 1206.
I had 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
the volume last 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 like now.

Even so, closing over 1325 is significant in that momentum trend players key on it.
Test Thursday to see if this sharp move is for real. Sell gap openings above 1350.
Buy morning weakness near Nasdaq 1290. Subscribers long Intel, AMD, Sun.
Nasdaq short-term stochastics over-bought 100%/98%, near-term should be down.
Expect near-term pullback to Nasdaq 1306, to reduce the short-term over-bought.
There are many waiting for this pullback to get on board, maybe it never happens.
The money fueling this rally is entirely coming from Asset allocation out of Bonds.

On intermediate 90-day, Nasdaq is 2.6% above moving average support at 1300.
90-day RSI neutral, MACD positive as a downtrend since May 28 appears ended.
There has been a mid-month rally for one week every month due to index options.
From last Monday's close at 1206 to Thursday at 1316 the total gain was over 9%.
The best two mid-month rallies in April and May averaged 7.8% gains in a week.
Same 8.3% from June 14 Nasdaq's opening low at 1445 to June 18's high at 1566.

This rally late Wednesday is something different, Asset allocation from Bonds to
stocks resulting from historic low yields under 4% in the ten-year Treasury notes.
Stocks are able to return higher than 4% average annualized returns for 10 years.
If insurance companies, banks, and pension funds perceive the Bond rally is over,
there will be a stampede to stocks. That is why my Subscribers are in technology,
the most beaten up group will beat other sectors in any 2-month 25% market gain.

With options expiring on Friday, the likelihood of a small decline to support is high.
90-day stochastics rose from Monday's 82%/90% to very over-bought 100%/71%.
The intermediate stochastics are forecasting an immediate pullback to MA 1300.
Traders waiting to get on board will watch the Nasdaq Futures closely at 7 AM.

Long-term Nasdaq moving average resistance is 1335. Nasdaq's declining 2-year
moving average is now at the lowest level during Nasdaq's 25-month Bear Market.
Treasury Sec. O'Neill says the U.S. economy is recovering. Bush says it's strong.
The average man in the street believes that Wall Street is for crooks and con men.
I wrote a year ago in August that U.S. was in recession and unemployment rising.
No one agreed with me. Now U.S. economic data supports my unique viewpoints.
However, if Nasdaq makes a significant move and closes above 1335 on Thursday,
a significant portion of the $47 billion which left stocks for cash in July could return.
Stock prices trade at the margin. It would only take 10% of the money that has fled
Nasdaq in the last 2 years to push the Composite Index back to 2100 in 3 months.

Goldman Sachs, Deutsche Bank, and Lehman urged quick Fed interest cuts.
The Fed did not make that move on Tuesday, only changing its bias to cautionary.
This reluctance to cut short interest rates further could END the terrific Bond rally.
With money pouring out of Bonds into stocks, and Republicans trying to win votes
for the November elections with stimulus policies, the only reason Nasdaq's bottom
has not been made yet is the threat of invasion into Iraq and a Sept. 11 anniversary.
Last week, the number of investment newsletter writers who are bearish exceeded
those who are bullish for the first time in 2 years. This happens at market bottoms.
RSI, MACD negative, rising stochastics are higher at 58%/42%, stuck in neutral.

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 18.29 +1.59 (+9.5%) above its moving average support at 17.60.
RSI, MACD positive, in 1 day, stochastics from 0%/48% to over-bought 96%/50%.
Aug. 2, Intel closed under 17 for only 3rd time in 30 trading days, with 17 as a floor.
Last weekend, Barrons downgraded Intel and AMAT, and no one sold the stocks.
I had put Intel at 17.54 and AMD at 6.99 on my recommended list for tech stocks.
Why? They will lead in what will be the best performing stock group in next rally.
With very little movement recently, the best call option values are in Intel, AMD.
AMD closed 9.05 +0.55 (+6.5%). AMAT closed 14.42 +0.96 (+7.1%) Aug. 14.
Compare the percentage gains to Cisco and Oracle, praised by Barrons Monday.

Please note subscribers long Intel at 17.54 on July 2 were stopped out with a gain.
Subscribers bought Intel at 17.54 again on Aug. 7, with a stop loss at 5% (16.67).
Aug. 14, Intel opened at 16.72 and went higher all day, my stop loss was never hit.
Recommend stay long and raise the Intel stop loss to 17.35, or 5% below its close.


MY STRONGEST RECOMMENDATION JULY 2002 buy AMDAB calls at 0.75.
AMDAB calls closed at 0.75 Friday, August 2 (Chicago Board Options Exchange).
AMD hit low of 7.01 Aug. 2 and rose to 9.05 since, AMDAB doubled up to 1.50.
Before AMD retests lows at 7, I recommend selling 50% AMDAB to recover cost.
Volume was heavy Wed. on AMEX, with option Bid at 1.30, CBOE Bid at 1.45.
Competitor AMD operating under B/E level, should be profitable in 4th quarter.
Watch end-user Dell, which is indicating that its recent sales are beating estimates.

Microsoft closed 49.71 +2.66 (+5.7%) above moving average support 47.90.
RSI and MACD positive, stochastics remain extremely over-bought at 96%/74%.
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.
However, fund managers never got fired for buying Microsoft, it could go up to 70.
On any pullback to support near 48, try to make a low bid on November 55 call.

Cisco closed 14.35 +0.98 (+7.3%) above moving average support at 13.35.
RSI, MACD positive, stochastics stayed at maximum over-bought at 98%/89%.
Cisco has a ton of overhead supply in May's previous chart gap 13.50 to 15.15.
Why am I 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.
Chambers prides himself running 9,800 E-academies teaching 263,000 students.
Problem is, his Cisco schools are in Asian countries and do not create U.S. jobs.
His buddy, Alan Greenspan, lobbied for Congress to eliminate Immigration quotas.
Productivity, Greenspan's favorite subject, is the measure of output per labor hour.
When Greenspan praises productivity gains, it means Cisco employs cheap labor.
If you an American citizen in college, forget trying to find employment at Cisco Systems.
Unless you are willing to move to Asia, enroll in Chambers E-academy, and then apply.

Oracle closed 10.05 +0.96 (+10.6%) above its moving average support at 9.65.
RSI, MACD positive, stochastics rose from very over-sold to neutral at 80%/45%.
Oracle only rose to nail it to the nearest strike price, 10, expiring August options.
Oracle had a nice run lately as Larry Ellison was an early CEO to certify financials.
Oracle did not break 10.40 in last Friday's reversal, so subscribers did not short it.
If closing at 10 this Friday, could be candidate for options spread: long a put, call.
Or a hedged long stock position, buy Sept. 10 put Thursday, buy the stock Friday.
If Oracle trades above 10.75 on Thursday, Aug. 15, recommending Sept. 10 puts.
Fully expect Oracle to fall back to 10 or below on Friday as it gets nailed to strike.

Dell closed 27.15 +1.43 (+5.6%) above its moving average support at 25.70.
RSI, MACD positive, stochastics remaining extremely over-bought at 95%/83%.
I have recommended shorting Dell at 28 for 1.5 years, and was right about that.
Lehman Brothers Dan Niles had a strong buy on Dell at 53 two years ago.
Dan Niles laughed in his CNBC appearance on Sept. 21 when Intel broke 19.
He called his fellow analysts at other brokerages stupid for recommending to buy Intel.
Same Dan Niles recommended Intel as a strong buy in March 2000 with 77.50 target.
Barrons rated Dell a buy with 20 tech stocks including Microsoft, Cisco, and 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 its latest 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 (now under 1.00) had been extremely heavy from August 5 to 8.
Buying Palm at $0.73 is like buying a long-term put option to bet that Dell fails.
Even so, fund managers are buying up Dell as it preannounced increasing revenues.
With expectations high for a breakout above 28, Dell calls at 27.50 are overvalued.
This makes for a profitable buy the stock now and sell the overvalued call against it.

Sun closed 4.44 +0.51 (+13.0%) above 90-day moving average support at 4.02.
RSI negative, MACD positive, stochastics remain very over-bought at 100%/72%.
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 new target price to 3.49 on July 20, and Sun Mico made its 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.
Sun looks safe to buy under 4.50, could top the largest percentage gainers in rallies.
Every time it has rallied over 10% in the past two years, Goldman Sachs trashed it.

Accenture closed 16.25 +0.13 (+1%) below moving average resistance at 16.26.
RSI negative, MACD positive, very weak stochastics fell into neutral at 42%/45%.
ACN hit my March target of 13.99 last month, which I had just lowered to 11.99
on Arthur Andersen's trial conviction. July 26, I lowered ACN target to 8.99
on California state pension plan to black-list the former Andersen Consulting firm
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 them is pending until later.

Thanks for reading Stock Market Direction by Steve Zito.
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