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Like everything in the market it is not the facts but the perception that drives
the market.
JW wrote:
> 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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