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I think we are near the end of this down move. A lot of big guns seem to be
trying to negate the impact of Russia and other overseas markets on the
overall US economy (at least short term). This could be a call to action
for the bulls. Will the OEX put buyers be taken out by next expiration?
Time will tell...
BTW: For those who follow the Presidential cycles, October of the 3rd year
is supposed to be a large down month (TASC 10/1996).
JW
abprosys@xxxxxxx <mailto:abprosys@xxxxxxx>
http://www.redherring.com/insider/1998/0828/deflation.html
BULLS SEE CORRECTION, BEARS SEE RECESSION
By Peter D. Henig
Red Herring Online
August 28, 1998
When Asia first faltered to crack, nobody seemed to care. The Dow tore
through 9,000 like a hot knife through butter. Questionable earnings?
Investors just shrugged. Internet stocks were the rage and technology IPOs
were going ballistic.
Suddenly, however, the world became a smaller place and investors are now
all ears.
Mexico's and Venezuela's currencies headed south, and Russia announced it
will no longer defend the ruble -- a full capitulation to devaluation.
And then the Dow cracked.
Stocks plummeted on Thursday with the Dow falling 357, or 4.2 percent, while
the Nasdaq Composite Average dropped 82 points, or 4.6 percent. On Friday,
it was more of the same: The Dow sank to 8,051.68, down 114.31 -- just above
the critical psychological level of 8,000 -- while the Nasdaq dropped 46.73
to 1,639.68.
This leaves us with a Dow down almost 15 percent from its highs, while the
Nasdaq ended Friday more than 18 percent below its all-time high, just short
of the 20 percent drop that would suggest a bear market, according to
analysts.
Cocktail conversation
"Investors here have gotten wound up at something they know nothing about,"
says Charles Crane, market strategist for Key Asset Management. "It makes
for great cocktail conversation."
Cocktail conversation about the Russian ruble? Yes, and more, say analysts.
Some are as skeptical about the emotions driving the current downturn as
they were about speculation driving the bull market's momentum. Others are
genuinely fearful that the end is nigh.
"International problems have compounded everything going on here, and
technically, this just broke the back of the Dow," said Ron Rizato, director
of research for Tasin & Co. "Look at the advance-decline ratio. It's a
horror show."
Technology stocks, both small and large, were also a horror show. For quite
some time, they have enjoyed lofty valuations, but now, they're flagging.
The largest tech companies, like Lucent (LU), Cisco (CSCO), Dell (DELL), IBM
(IBM), and AT&T (T) have held up well, say traders, but even those have
shown signs of deterioration.
Among the Internet stocks, Yahoo (YHOO) lost 8 to 83.06, AOL (AOL) lost 8.25
to 96.25, and Amazon.com (AMZN) got flattened by 13.11 to settle at 105.89.
Big-cap bellwethers hit the skids as well, with Microsoft (MSFT) dropping 4
to 105.25, Dell down 6.13 to 118.75, and Cisco off 4.44 to 94.69. As well,
the Russell 2000 and the S&P 500, which represent the small- and mid-cap
stocks of the market, are both nearing their lows for the year.
"This is the most bearish I've see it in five years," said one Wall Street
trader. "It used to be called a correction; now I'm hearing 'bear market.'"
Check your emotions at the door
What's driving analysts mad right now are the emotions driving this move.
Traders have reported near-panic selling at times, even though many
marketwatchers suggest the fundamentals aren't all that different from six
weeks ago. "It's becoming chic to sell stocks," claims Mr. Crane. "The U.S.
economy, while softer, is not falling apart at the seams."
But what appears to have the market truly concerned -- some might say overly
concerned -- is the fact that right now one-third of the world's economies
are in recession or depression while much of the the other two-thirds are in
very fragile forms of expansion.
Commodity prices across the board have experienced steep declines,
indicating that deflation, not inflation -- the Federal Reserve's constant
worry -- may be upon us.
"What the market is telling us is there's a slowdown coming here," says Mr.
Rizato. "Look at how fast and drastic the CRB [Commodity Research Bureau
Index] has been falling here. You get those deflation worries, and suddenly
it smells like fear."
But what is really onerous, suggests Mr. Crane, is the potential price
decline in both goods and services worldwide. "If everything started going
down in price, especially now, that's what could really be scary."
To Russia with love
For now, however, Wall Street says don't panic.
"The Web will grow without Russia," trumpeted Keith Benjamin, Internet
analyst with Robertson Stephens, in his recent Weekly Web Report.
Mr. Crane was equally blasé: "Russia's stock market capitalization is
probably less that of Yahoo's. Who cares?"
And for the ultimate denial, Abby Joseph Cohen, Goldman Sachs' market guru,
reiterated her bullish comments, times two.
"Stocks are 7 to 10 percent undervalued," said Ms. Cohen, repeating her
statement issued on Monday, when she considered the S&P 500 5 to 8 percent
undervalued. Like most of the analysts we talked to, she added that the
selloff was due mostly to a shift in sentiment, not a fundamental change in
the business climate.
As for predictions, only Mr. Rizato, a technical analyst, sees the market as
continuing to sell off.
"I see another measured move to 7600-7800," predicted Mr. Rizato. "A lot of
people were too heavily weighted walking into the highs, and there could be
a lot of mutual-fund redemptions from here."
Mr. Crane and Mr. Benjamin, on the other hand, see a bottom in the market's
future. "I've been saying for a long time a trading range between 8300 and
9300," says Mr. Crane.
Mr. Benjamin offered no more precise numbers: "It is impossible to pinpoint
the perfect day, but it is reasonable to believe these are attractive
levels."
Attractive levels for a correction? Or a midway point in a recession?
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