Enough Already!

The continuing saga that is the Presidential Election is still weighing heavily upon the stock market. At two weeks and counting we are not any closer to ending this embarrassing situation. Remember when the market was guilty of irrational exuberance? Even the smallest perceived positives resulted in incredible rallies. Bulls are learning that the opposite is true. The smallest perceived negatives are crushing stocks. Long term, there is still a natural bullish bias. Institutional cash is piling up. Individual's trading cash is dissipating quickly. This market may still need another major high volume capitulation sell off before a sustainable rally can ensue. Analyst's are still pretty bullish. This a contrary indicator. This bear market probably cannot end until more market participants completely throw in the towel.

The election fiasco was not the only culprit in today's sell off. Once again technology stocks were in the spotlight as an influential analyst made wide sweeping downgrades on a number of Internet infrastructure stocks. Morgan Stanley Dean Witter's Christopher Stix lowered his ratings and lowered his 12-month share price targets on Juniper Networks (JNPR), Extreme Networks (EXTR) and Redback Networks (RBAK). This analyst cited an overall economic slowdown and lower spending for his downgrades. Mr. Stix also lowered his price target on Cisco Systems (CSCO) to $75 from $90. This slew of downgrades was all traders needed to slam the technology sector again.

The NASDAQ (COMPX) established a new 52-week low of 2875.64 and touched last week's low of 2859.39 where it found a little support and bounced. For the day the NASDAQ was down 151.55 or 5%. Volume was about average with 1.7 billion shares traded. Breadth was ugly, as there were 30 decliners for every 10 gainers. There were only 15 new highs compared to an incredible 294 new lows.

Volume leaders were weak across the board. Oracle (ORCL) was slammed $4.06 to $24.75. A high level executive left the firm to take the helm of Veritas Software (VRTS). Although Oracle claims that the brain drain should not hurt the Company's results, several analysts used the announcement as an excuse to downgrade the stock. Cisco Systems (CSCO) recovered some of its earlier losses but still finished down $1.50 to $51.25. Dell Computer (DELL) continued its woeful recent performance as it shed $1.56 to $23.38. Sun Microsystems (SUNW), which had been a bastion of strength only a few weeks ago, was slammed another $7.69 to $81.63. JDS Uniphase (JDSU) dropped $5.56 to $64.56.

There was a slew of double-digit losers on the NASDAQ. Juniper Networks (JNPR) led the stampede to the exits with a drop of $32.50 to $121.88. It was closely followed by Brocade Communications (BRCD), which lost $31.75 to $188.44. Emulex (EMLX) was crushed $28.06 to $120.94. Micromuse (MUSE) was a leading decliner in a weak Internet software sector. The stock plummeted $24.38 to $99.81. Check Point Software (CHKP) was another notable loser with a drop of $23.50 to $112.50. There were also some crushing defeats in the Biotechnology sector as investors continue to pound anything that is perceived to be trading at "high" valuations. Protein Design Labs (PDLI) was quite sick and lost another $14.00 to $71.00. Millennium Pharmaceuticals (MLNM) was a huge percentage loser as it dropped $12.88 to $41.44.

You had almost a better chance of finding a consensus opinion in Florida than a NASDAQ stock with a decent gain today. There were a couple of stocks that managed to avoid dropping some more and actually bounced a little. Paychex (PAYX), which has mostly avoided the market malaise, rallied $3.59 to $59.44. Nextel (NXTL) moved up $2.75 to $36.31, while Network Appliance (NTAP) improved by $2.69 to $67.25. Integrated Device Technologies (IDTI) bucked the trend with a climb of $2.56 to $44.88.

This market has been recently characterized by divergences between the Dow Industrials and the NASDAQ. However, today saw the Dow drop right along with the NASDAQ. The INDU fell 167.22, or 1.6%, to 10,462.65. Volume was an unimpressive 949 million shares. Decliners beat up gainers by a 19 to 10 margin. There were 47 new highs and 109 new lows.

Technology components hurt the Dow. Microsoft (MSFT) fell $1.88 to $67.19 and Intel (INTC) dropped a more modest $0.38 to $41.13. Hewlett Packard (HWP) fell $1.06 to $34.56. The biggest loser was Coca Cola (KO). Shares of KO dropped $4.88 to $56.56, as investors frowned on their offer to buy Quaker Oats (OAT). Financial stocks were cashed out as well. American Express fell $3.44 to $52.63 and Citigroup (C) slipped $2.00 to $49.38. Helping the Dow was IBM with a modest gain of $1.31 and Merck (MRK), which picked up $1.88 to $90.38.

There were plenty of declining stocks on the NYSE. Quest Diagnostics (DGX) was stung with a $9.38 loss to $96.88. Celera Genomics (CRA) lost $7.00 to $46.13. Goldman Sachs (GS) helped to lead a weak brokerage group with a decline of $5.06 to $83.00. Former favorite, EMC was hit again with a drop of $4.56 to $80.31.

Winners on the active list included Micron Technologies (MU), which picked up $1.69 to $35.44. Nortel Networks (NT) was another beaten down technology stock that actually bounced today. Shares of NT were up $1.19 to $35.25. Teradyne (TER) recovered some of its recent losses with a gain of $3.06 to $36.56.

The major Indices began their new option expiration period with a resounding thud. The S&P 500 (SPX) dropped 25.1 to 1342.6. The S&P 100 (OEX) lost 15.06 to 710.04. The NASDAQ larger stocks, which are tracked by the NASDAQ 100 (NDX), actually fared a little better than the overall NASDAQ as the NDX "only" dropped 143 to 2792. Smaller stocks, represented by the Russell 2000 (RUT), could not avoid the carnage as this Index fell 12.37 to 470.24.

Among industry groups the story of the day was the continued destruction of the Biotechnology stocks. Their Index, the BTK, was crushed 65.42 to 557.82. There is heavy profit taking in this sector because it is one of the last high growth sectors that anyone can actually take a profit in. Semiconductors (SOX) fell by a modest 9.55 to 662, as this sector continues to build a base. Bank stocks (BKX) dropped 21.58 to 786.26 on continued concerns about the slowing economy. Oil stocks (XOI) were down slightly, 2.62 to 521.83 and Pharmaceutical (DRG) stocks were up slightly, 2.24 to 428.46.

Bad days for the stock market continue to be good days for Treasuries. The 10-year Treasury note picked up 7/32 to a yield of 5.675% and the 30-year bond gained 11/32 to a yield of 5.75%.

The battle for control of highly prized Gatorade became more intense than the build-up surrounding last weekend's Florida State-Florida football game. (Incidentally, Gatorade was invented by a trainer at the University of Florida, nicknamed the Gators, hence the name Gatorade). The beverage is currently owned by Quaker Oats (OAT). Pepsi (PEP) had been trying to takeover OAT for $13.7 billion. Coke's proposed bid values OAT at $115.00 a share. Shares of KO fell $4.88 to $56.56 while shares of Pepsi (PEP) rose $1.06 to $45.00 and OAT soared $4.69 to $95.00.

Agilent (A) may give the beleaguered technology stocks a lift tomorrow. The Company reported solid results after the close. In after hours trading, shares of Agilent were up $1.37 to $46.00. The Company reported profits of $0.69 a share or $305 million. The numbers crushed analyst's estimates of $0.53. The Company further added that it is comfortable with estimates calling for 20% revenue and earnings growth for 2001. The Company believes that first quarter estimates of $0.45 are realistic.

There was another downgrade that rocked the Internet sector. Shares of EBay (EBAY) sunk $8.81 to $34.25 after Lehman Brothers lowered their rating to Neutral from Buy. The justification for the downgrade was the citing of a slowdown in on-line auctions. Ebay countered that it was comfortable in its goals to achieve $3 billion in revenues by 2005. The analyst at Lehman believes these goals to be somewhat optimistic.

The NASDAQ did find some solid support today at 2860. Many traders were impressed with the Index's ability to hold above last week's low of 2859. Considering that this is a holiday- shortened week that has a bullish bias, we can probably expect a modest bounce tomorrow and Wednesday. In 47 years the market has only dropped during this two-day period seven times. According to the RSI, the NASDAQ is oversold which helps to confirm the bounce theory. Longer term, things do not look terribly bullish. The MACD is still in a downtrend and this indicator has to issue a buy signal if we are going to get a sustained rally. As I mentioned before, a big volume capitulation sell off may still be necessary to establish a bottom. This could occur next week if we are not any closer to declaring a President by then. A bounce rally will likely find resistance at 3000 and then 3100. Today's intraday low is the critical support. A drop below this support and the NASDAQ could drop all the way down to 2620, which was support in October 1999.

The Dow Industrials do not look very good right now but they also may be a beneficiary of a holiday rally. There is some resistance established by today's high of 10,623 followed by last week's high of 10,850. Just like the NASDAQ, the DOW's MACD is downtrending which indicates that rallies are likely to modest until investors can become really confidant that earnings problems are behind us.

There is at least one solid argument that the worst is behind us. The earnings period is over so we should not have any more bad news from that front. Everybody already knows that fuel prices are high but they are unlikely to double again like they have recently. Although the Fed still has not turned to a Neutral bias, the path of least resistance points to a rate cut early next year. The bottom line is that with so much bad news already out there and so much cash sitting idle, things are unlikely to get much worse. Hopefully, these are not famous last words.

Semiconductors, Pharmaceuticals and selected Consumer stocks may be the way to go. Really aggressive investors may try and pick up a quick bounce in web infrastructure and Biotechnology stocks. Both groups are oversold in the short term.

Good Luck! And may all of your trades be winning ones!