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 1687.70

The Tsunami of Selling to Come
Mon., Sept. 10, 2001

******************Commentary*******************
Sept. 7 Go To Page 2 Nasdaq closed 1687.70 -17.94 on Friday, Sept.7. Nasdaq failed to hold 1760 level, my forecasted target. Bush made a speech about a huge jump in unemployment to 4.9%, markets wilted. Only stock group which showed strength was technology. Defensive value plays, Dow Industrials were hammered. Most selling done by mutual funds raising cash levels expecting redemptions. Everything looked bad in March, then Nasdaq rallied sharply in April and May without a turnaround in economic fundamentals. Psychology drives stock prices, Nasdaq technology issues were very over-sold Friday. Nasdaq has fallen so much in the past month alone it erased the rally of April and May. The fear building in markets here and abroad is so pervasive, smart money is selling short without any hesitation. Bush is going to announce further steps to bolster the economy this week. Treasury Sec. O'Neill is meeting with the Finance Minister of Japan. Today, IDC revised its PC shipment forecast for the year down 10%, worst since 1986. Causes are slow sales shipments in U.S. and Japan. PC sales are going straight to Dell. Will tsunami of stock selling end? Nasdaq is so over-sold it will rally on Sept. 10 no matter how bad the news this week. On 10-day chart, Nasdaq closed (0.55%) just below moving average (MA) resistance at 1697. RSI, MACD stay negative, stochastics neutral at 45%/28%. I have been forecasting for 2 months Nasdaq would fall to 1760 to test the April lows. It overshot the mark because mutual funds are selling preemptively to cover redemptions. News of $10 billion outflows from equity mutual funds in the week of Sept. 5, 2001 explains large-scale dumping of stocks by mutual funds to pay investors fleeing the markets. On intermediate Nasdaq 90-day chart, closed 4.1% under 90-day moving average resistance at 1760. Nasdaq is now down 32% for the year with amazing 18.4% since Abby Joseph Cohen called a new bull market on Aug. 1. When the Nasdaq was crossing 3000, 4000, and 5000 to the upside, Al Greenspan raised Federal Reserve interest rates too much to KILL off Nasdaq's bubble. Great job of killing stocks by a Fed chief who owns none. RSI, MACD negative, stochastics scraping bottom at 7%/10%. Long-term Nasdaq moving average resistance (MA) is 1869. Nasdaq's 2-year resistance is 11% above Friday's close. RSI, MACD negative, below April lows. Stochastics are very over-sold at 0%/16%, equalling lows for the year. An old rule of thumb, traders always sell "first rallies" off these lows, EXPECT any rebound to top at 1838. CEO's of Intel, Microsoft, Cisco, Dell say business has stabilized. If true, Nasdaq big-caps rally soon. Recommend wait and see, if you miss a first wave higher, TRADERS and SHORTS will be selling. Catch a second wave up late in October.
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