Steve Zito (MS Finance) is a member of the HTML Writers Guild
using 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 for investment decisions.
Nasdaq June 18 Nasdaq June 2 INDEX Market Data INTEL Recap

NASDAQ COMPOSITE
INDEX closed 4013.36

Nine of nine indicators are POSITIVE
Tue. June 20, 2000

******************Commentary*******************
June 20. Nasdaq's upside potential has not changed since my June 2 page. The recent sideways activity is "DISTRIBUTION" as traders have started a rally in order to unload positions accumulated at the end of May. Key leaders Intel, Microsoft, Cisco, Oracle, Worldcom and Dell have performed well, averaging a 26.2% gain since May 24. But in the same time, the Nasdaq Composite Index has gained 31.9%! Leaders are lagging the market. An investment guru was on cable TV financial news today pushing these lagging Nasdaq leaders. The last 2 times this noted strategist made the media rounds coincided with a short-term bottom April 17 at 3230, and a rebound at 3600 on May 3. After that "be invested 90% in stocks" buy signal, which I sharply criticized in my May 3 page, the Nasdaq plummeted 3 weeks to 3042. Now he is back again advising the public to buy now after Nasdaq's recent 31.9% surge. Obviously, RISK is not in this person's mindset. Momentum trading is fine, if there is 100% tolerance for RISK (similar to gambling). Yesterday's Nasdaq trading resembles short-covering capitulation rather than a breakout above 3850. Daily Nasdaq charts show stochastics are over-bought at 92.15/90.79%, a level last seen in early March when the Composite Index traded above 5100. Expect a near-term pullback to 3500 to relieve this over-bought condition. The 15- and 30-minute charts support this with negative MACD and stochastics (see Market Data). Intel was in a trading range between 110 and 130 for three months, but broke out with the semiconductor sector momentum surge this week, soaring 10 points yesterday and 4 today to hit 140. I used the dramatic jump to take a $1,000 position in 8 Intel July 120 puts in the Model Portfolio. Stochastics on Intel's 60-minute chart show an over-bought condition at 85.97/89.16%. I expect Intel to trade back under 130 to the range forecasted April 26. With a P/E over 60, about 76% above the high end of Intel's price to earnings level in the last 10 years, the stock is clearly overvalued. Microsoft's MACD and stochastics have greatly improved, forecasted June 2 when the stock was 66. Cisco stalled at 67 with a P/E of 190. Cisco's stochastics at 86.35%/88.49% show the stock remains overbought, expect a pullback to support at 63. Oracle is trading above 80 again, on May 15 I said Oracle's move to 80 was a "false breakout" since MACD, RSI and stochastics were negative then. This time MACD and stochastics are positive, but over-bought with the P/E at 134. MCI Worldcom, P/E 27, is the best value of the leaders, described May 3. WCOM is showing weakness on fears its Sprint merger will be blocked by the Justice Dept. Dell investors are flooding into the stock without fear of the current P/E of 75. Expect Dell to trade later this summer at a realistic P/E of 38, which will produce a $24 stock.
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