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 1930.32

Why Brokerages are Trashing Nasdaq
Fri., Aug. 17, 2001

******************Commentary*******************
August 16. Go To Page 2 Nasdaq closed 1930.32 +11.43 on Thursday
On the short-term 10-day Nasdaq chart, the moving average (MA) continued to fall to 1905 from Wednesday's 1940. Nasdaq opened below 1890 in a massive selling panic and remained there until 1 PM, before a spirited oversold rally began in the afternoon. The late move higher was led by Intel and Microsoft, which are in the Nasdaq and Dow Jones Industrial Average. Dow Jones Industrial (DJX) options for August expire on the open Friday, and the large investment funds rallied Intel to $30 and Microsoft to $65, their nearest strike prices, to force the Dow Jones Industrials to its nearest strike 10400 (DJX 104). Expiration of August Dow Jones Index options are based on Friday's opening Dow Jones, and expiration of August stock options on Intel and Microsoft are based on Friday's closing prices. Funds' goal is to "nail the Dow Jones Index, Intel, and Microsoft to their strike prices" to force options, puts and calls, to expire worthless. The investment houses then collect the premiums for selling those options to public speculators. You won't hear about this plan on the cable TV financial programs, because it is far too complicated for cable TV's announcers to understand. In March, a lot of money was bet on Intel put options for this summer at the strike price of $30 when most viewers of CNBC were bombarded with the opinions of prominent brokerage analysts painting a picture of massive price declines to $12 this summer for the world's largest chip-maker. Dan Niles (Lehman), Ashok Kumar (Piper Jaffray), and Joe Osha (Merrill Lynch) have been so inaccurate about price targets for Intel this year, it is really amazing that these 3 are still employed. Their firms wanted you to sell the quality stocks like Intel. If you never sell, brokerages don't make any commissions. Strategists for well known brokerages told you to buy when Nasdaq was at 5000. Who are these gurus? You know the names, Abby Joseph Cohen and Joe Battipaglia are the ones who urged the public in at Nasdaq 5000. The inability of Nasdaq to hold 1950 was forecasted correctly in my website home page August 10, when Nasdaq was 1963. Short-sellers are having a wonderful summer, and volatility is increasing the closer options expiration approaches. The rate of decline was restrained by large stocks moving higher Thursday for settlement in the August stock options expiration Friday, but intraday volatility is incredible. Next week, Nasdaq could really show its bear claws, when investors finally throw in the towel after more than a year of pain. The financial TV media has done its best to confuse the public, because cable TV personalities are just as confused as the investing public. The U.S. Federal Reserve has been lowering interest rates almost every month since January 2001, and the effect has been meaningless to Nasdaq.
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