A good time for Nasdaq investors to do nothing?
Published in the Asbury Park Press 2/24/01
THE ASSOCIATED PRESS
NEW YORK -- Remember the Nasdaq's 86 percent gain in 1999? Savor those memories, because that stunning rise has been wiped out. As the Nasdaq composite plunged to its lowest point in more than two years this week, Wall Street is again wondering when the tech-laden index will finally reach bottom.
The concensus: The worst isn't over, and this bear stock market isn't going away soon.
"We are in a major bear market," said Ricky Harrington, a technical analyst for Wachovia Securities.
Although the Nasdaq this past week fell 162.87 points, or 6.7 percent, to end the week at 2,262.51 -- and fell all the way to 2,156.29 before rebounding slightly yesterday to finish up 17.55 -- the feeling on Wall Street is it still hasn't hit bottom.
"I know there are a ton of people out there that continue to say, 'We're getting close. We're getting close.' I just have to say I don't think so," said Gary Kaltbaum, a technical analyst for J.W. Genesis.
"I'm a big believer in reality and letting the market talk, and I think it has a very loud voice here," Kaltbaum added. "I don't see anything that shows it's going to turn around."
While the Nasdaq has taken the biggest beating, the other major market indexes also are suffering. The Dow Jones industrial average and the Standard & Poor's 500 index are also in negative territory for the year. Many big-name stocks, such as Intel Corp., one of the Dow's tech components, and Cisco Systems Inc., are trading at more than half their 52-week highs.
"That type of damage doesn't turn around quickly," Kaltbaum said.
Analysts like Kaltbaum and Harrington, who have been bearish about the market for months, are getting more company on Wall Street. The most recent evidence came yesterday when analysts at Credit Suisse First Boston and Lehman Bros. slashed their yearly outlooks for the major market indexes.
Credit Suisse cut its year-end target for the Nasdaq to 3,000 from 4,000. It reduced the Dow to 12,000 from 12,650, and the S&P to 1,520 from 1,600. Meanwhile, Lehman reduced its estimates for the Dow to 12,500 from 13,000 and for the S&P to 1,600 from 1,675.
Both brokerages said the reasons for their cuts were ongoing market slide and the likelihood that earnings won't improve as quickly as the market had thought.
The reduced outlooks are "a good sign," said Arthur Hogan, chief market analyst at Jefferies & Co.
"As soon as everybody throws in the towel, that's when we'll know we reached the bottom," Hogan said.
The market for a while, however, has been fooling analysts and investors into thinking it's bottomed out. Several analysts have erred in heralding each bottom the Nasdaq has hit in the past year -- and there have been about five -- as being "the bottom."
Likewise, some also predicted that recent rallies would lead to a more lasting recovery for the market. But so far, the market has slipped up analysts and investors by staging false bottoms and false rallies.
Consider last month, when Wall Street sent stocks higher after the Federal Reserve made two interest rate cuts. Analysts and investors then hoped earnings and the economy would soon pick up. The Nasdaq climbed nearly 25 percent after the first cut, and was still up about 20 percent after the second.
But those gains didn't stick. Since then a litany of companies have warned that their profits for most or all of this year will be pretty poor, re-igniting the market's fears and prompting more selloffs. And, a spate of economic news, including this week's news that inflation spiked by its highest amount in 10 months, has only compounded investors' woes.
Still, that doesn't mean there won't be rallies in the coming weeks. Harrington said investors should be cautious, however, because advances -- so-called bear market rallies -- will come in short-lived spurts.
"Bear market rallies tend to look better than the real thing. They are quick and sharp and come out of the clear blue sky," Harrington said.
Investors seem as mixed up as the market. Still, some, like Jim Davis, a truck parts distributor from Coral Springs, Fla., remain hopeful that the worst is over.
Davis said he's encouraged by how dependent Americans and the economy are on technology. That's why he's holding onto companies like Intel and Microsoft Corp.
"I'm in a holding pattern," Davis said. "I would hate to sell at this bottom. I think there is a lot of panic selling. . . . I am in it for the long haul."
Davis' strategy is a wise one, said Hogan, the Jefferies analyst.
"Sometimes doing nothing is the best," Hogan said. "Long-term investors would do the best to sit on their hands and ride out the storm."
© copyright 2001 The Associated Press
