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Aaron L. Task -- What a Week: It Was All About Wednesday (excerpt)
By Aaron L. Task
Senior Writer
05/10/2002 06:04 PM EDT
URL: http://www.thestreet.com/markets/aarontaskfree/10021936.html

One day does not a market make. But one session did dominate this week, both in terms of market action and conversation topic.

Of course, I'm referring to Wednesday's blockbuster rally, which was widely attributed to better-than-expected earnings and a not-as-bad-as-feared outlook from Cisco (CSCO:Nasdaq - news - commentary) .

Alternative explanations for the rally included the market's extreme oversold position and hopes for a settlement between the New York attorney general and Merrill Lynch (MER:NYSE - news - commentary) , as well as long-held conspiracy theories about intervention by government entities, namely the Federal Reserve and/or U.S. Treasury.

Ike Iossif, president of Aegean Capital, an investment advisory firm in Chino Hills, Calif. "refuse [s] to believe in such things as the 'plunge protection' team," and there's no proof they exist. But Iosiff noted Wednesday's session had many of the same characteristics as past rallies that have encouraged such claims:

It occurred when market averages were "dangerously flirting with support areas perceived to be critical by institutional investors." (Actually, many had breached perceived support levels earlier this week or late last week, making a recovery all the more crucial from a psychological standpoint).

It originated in the futures markets (which is where the Fed would theoretically engage its open market operations), which pushed the cash markets to open at levels that compelled short-covering immediately at the opening.

It was based on very flimsy fundamental basis (certainly, many quibbled with the quality of Cisco's earnings, revenue and forecast).

Finally, and most tellingly, it didn't have any follow-through.

Specifically, Iossif referred to the lack of follow-through in international markets, where participants are more accustomed to government intervention in financial markets. At least they are less stunned or frightened by the concept. (There was a lot of recollection this week about the Hong Kong Monetary Authority's efforts to limit short-selling in 1998 and the Bank of Japan's myriad efforts to aid the Nikkei since its peak in 1989.)


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