STOCK MARKET DIRECTION Email Edition for August 22, 2002
published by Steve Zito 6:00 AM EST August 22, 2002. All rights reserved.

Nasdaq will pull back to 1375 and let the traders who missed the boat
jump on board the summer rally back to May's low at Nasdaq 1540

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Nasdaq Composite Index closed 1409.25 +32.66 Wednesday, August 21, 2002
Nasdaq has risen 32.66 (+2.4%) since my Email Newsletter August 21, 2002.

On the 10-day chart, Nasdaq is 0.9% above its moving average support at 1396.
RSI and MACD remained positive, and both continued to show an intact uptrend.
Concerns about war with Iraq faded away as Bush revealed recent rhetoric is talk.
Traders are having a field day with Nasdaq, beaten up for 25 months, now firmly
moving higher at least to the May low of 1540 before some serious profit-taking.
I long forecasted semiconductors would lead a move, and for 10 days, they have.
Due to volatility in July, Index call options premiums never became a good value.
Options are 100% risky. Options buyers have to be correct from day of purchase.
My 83% options accuracy in 2 years is related to catching bottoms, finding values.
Nasdaq's rally may have a few weeks and months in it, until the November voting.
It is becoming clear Bush leaks on war with Iraq are just talk to win the election.
I don't believe Bush has any intention of backing up his Axis of Evil warpath cries.

My subscribers in Intel, AMD, Sun, Elan gained an average of 7.56% on Aug. 21.
ELN (July) was an especially strong gainer, closing at 2.50 +0.39, a gain of 18.48%.
Subscribers bought INTC at 17.54, AMD at 7.01, SUNW at 3.50, ELN at 1.69

Nasdaq short-term stochastics over-bought at 93%/70% but can remain O/B for
several days before any serious pullbacks. Sidelines traders are kicking their PC's
asking why they did not buy at Nasdaq 1206. They will come in over 1500, too late.
The market moved smartly to 1400 on Monday as forecasted, became over-bought.
There are traders waiting for a pullback to get on board, it will severely limit selling.
Recommend for each 100 points higher, expect 50 points to be given up quite soon.

On intermediate 90-day, Nasdaq is 3.1% above moving average support at 1367.
90-day RSI, MACD very positive as a downtrend since May 28 is just a memory.
Money coming from Asset allocation out of Bonds could push stocks 10% higher.
90-day stochastics are cautionary as they are extremely over-bought at 99%/92%.
Nasdaq is up 34 points after consolidating at 1375 all day on Tuesday. Gap open
at 1425 on Thursday should be sold, pullback on the open to 1400 can be bought.
This is a trading rally, and the only way to make gains with low risk is buying dips.
Let suckers chase gaps higher. From 1425, I forecast a nice quick fall to 1375.
However, fund managers are desperate for a positive quarter, they will buy that drop.
Higher prices generate funds inflows, fund managers then must invest funds 100%.
As proof, $3.4 billion flowed into Equity funds in the last 5 days, as compared to
the previous week which saw $4.2 billion going out of Equity funds (AMG Data).

Long-term Nasdaq moving average support is 1375. Nasdaq's two-year downtrend
has been broken by a rally for only the third time since March. Will this really last?
I fully expect Nasdaq to stair-step its way higher until it gets to May's low at 1540.
By then we'll see pause, business shutdowns commemorating Sept. 11 anniversary.
RSI, MACD negative but rising, stochastics are extremely over-bought 100%/75%.
Last time 2-year chart stochastics were this O/B in March, Nasdaq fell for 9 weeks.

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 19.59 +0.62 (+3.3%) above its moving average support at 18.85.
RSI and MACD are positive, stochastics remain very over-bought at 95%/89%.
Wednesday, Intel gained 3.3% compared to Nasdaq Composite which rose 2.3%.
So much for Merrill Lynch Joe Osha's July downgrade, negative Barrons articles.
Please note subscribers long Intel at 17.54 Aug. 7, raise a tight stop loss to 18.60.

AMD is 10.70 +0.51 (+5%) off a low of 7.01 Aug. 2, AMDAB up 207% to 2.30.
If AMD retests 7.00, I have already advised selling 50% AMDAB to recover cost.
The option has five months to run, so let it grow, AMD has the potential to go to 20.
AMD and EMC are outperforming the semi and storage groups as well as Nasdaq.

I bought AMD options in 1999 at 1/8 and sold them 2 weeks later at 6.00 (48 to 1).
Bought AMDKD when Merrill Lynch downgraded the semiconductor group.
After the downgrades, AMD went from 18 to 28. Intel went from 72 to 144 in 5 mo.
The Merrill Lynch semi analyst was fired for it, replaced by just as wrong Joe Osha.

Microsoft closed 52.28 +1.24 (+2.4%) above its moving average support 50.50.
RSI and MACD positive, stochastics remain extremely over-bought at 99%/92%.
I have been very negative on this stock, the firm has billions in unexpensed options.
Microsoft Network is error prone, lacks security, crashes PC's. I see it every day.
However, fund managers never got fired for buying Microsoft, it could go up to 70.
Waiting for a pullback to buy November 55 call (MSQ) when the stock hits 48.
Have to wonder whatever happened to the nine states seeking antitrust remedies?

Cisco closed 15.11 +0.38 (+2.6%) above its moving average support at 14.42.
RSI and MACD positive, stochastics stayed extremely over-bought at 90%/86%.
Chambers prides himself on running 9,800 E-academies teaching 263,000 students.
When Greenspan praises productivity gains, it means Cisco employs cheaper labor.
Productivity is measure of output per labor hour cost, Cisco hires overseas workers
in India and Asia who are paid 50% less than U.S. workers to produce same output.
With the current protectionist sentiment building in the U.S. Congress, avoid Cisco.
Watch key employment data to be reported on Sept. 6. Jobless rate may rise to 6%.

Oracle closed 10.76 -0.00 (-0.0%) above its moving average support at 10.42.
RSI, MACD positive, stochastics sliding from extremely over-bought to 80%/70%.
Strategies have a hedged long stock position, buy Sept. 10 put, stock at same time.
If position is already on, the put will recover most of any loss on earnings surprise.
Since Oracle traded above 10.75 on Monday, Aug. 19, it's a breakout to the upside.
I expect Oracle will trend higher yet the company has a history of hiding bad news.
If it sounds confusing, Oracle quarterly sales are back-end loaded, at quarter's end.
In Feb. 2001, they preannounced great news, two days later, reversed entire story.
Stock was 21, opened the next day at 16 and never recovered, until it hit 8 in May.
This invited a multitude of class action lawsuits against Oracle for misrepresentation.

Dell closed 28.05 +0.35 (+1.3%) above its moving average support at 27.31.
RSI, MACD positive, stochastics remaining extremely over-bought at 80%/81%.
Dell has survived by taking share in the U.S. and Europe from Compaq, Gateway.
When it comes to Asia, the last new market, Dell's appeal completely disappears.
Dell is only good at one thing, selling Dell PC's marketed to U.S. teens and business.
They market using a TV character named Steven who acts like a complete idiot.
Let's see if Dell's TV spokesman "Steven" goes well in selling to the Chinese.
Chinese are very serious people, and do not appreciate silliness or stupidity in ads.

Did you know the actor who plays "Steven" is a scab who crossed SAG picket lines?

Sun closed 4.18 +0.14 (+3.5%) above 90-day moving average support 4.15.
RSI negative, MACD positive, stochastics are unextended neutral at 37%/45%.
Lowered new target price to 3.50 on July 20, and Sun Mico made a bottom there.
Despite downgrading Sun Micro repeatedly since March 2001, Laura Conigliaro
has not finished yet. She downgraded Sun, EMC, Hewlett, and IBM August 15th.
Downgrade by this Goldman Sachs technology analyst just sent Sun down 9.0%,
near my stop loss at 3.99. Sun Micro traded at low of 4.00 Wednesday, and rose.
Good to have to use a 5% stop loss rule (5% below closing 4.20 after downgrade).

EMC closed at 8.02 +0.42 (+5.5%) above its moving average support at 7.50.
Traders hearing rumors that Cisco wants to make acquisitions in the storage space.
EMC bottomed at 5.90 on July 29, has good 90-day support at 7.50, buy at 7.20.
RSI and MACD just now positiive, stochastics are very over-bought at 100%/90%.
Recommend Sept. 7.50 call (EMCIU on CBOE) place a Bid at 0.50 on pullbacks.

Accenture closed 18.70 -0.00 (-0.0%) above moving average support at 17.90.
RSI and MACD positive, stochastics are rolling over off over-bought at 92%/80%.
Congressman McDermott described ACN as "unpatriotic" on CNN on Aug. 1, and
wants Congress to restrict NYSE listed companies with headquarters in Bermuda.
Since Congress is in vacation recess, no action against ACN is pending short-term.
Accenture rose last week as IBM rallied, which is ACN's chief E-business competitor.
In July, IBM bought Price Waterhouse Consulting (PwC) to strengthen its E-business.
Both Accenture and KPMG Consulting (KCIN closed 11.96 +0.48) could rally but
only in immediate short-term as IBM consolidates PwC into IBM's corporate structure.

Great candidate for November put options. I like the ACNWV Nov 12.5 put (Amex).
Bid 0.10 for it. This put option has not traded since I recommended taking a position.
The Bid is 0.10 on the AMEX and the Bid is 0.10 on the CBOE. Open interest is 20.
Someone bought 170 Feb 15 puts ACNNC (Amex) on Wednesday at market for 1.35.
No other ACN activity was noticeable, and this put WILL be a value by bidding 0.50.
Normally I do not like to go over 6 months, but ACN could be targeted by Congress.

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