First Bullet Through
February 23, 2004
Yikes. The hints of trouble I pointed out earlier are finally coming home to roost on the NASDAQ. Intel has broken a key support level and most of the rest of techland has followed. Many speculative names have been telegraphing this trouble for those of us willing to listen. The NASDAQ is broken and after five straight weeks of negative closings, it is looking quite ugly. While many tech-haters are likely celebrating the coming of the end of unjustified high valuations, I would offer the following caution that further weakness in techland will also foretell doom for the rest of the market. The NASDAQ's leadership out of the bear market has defied a lot of conventional wisdom, and it has been the psychological beacon for bullishness in equities. I suspect that very little will work if the NASDAQ continues limping along severely wounded. As far as short-term moves, expect continued weak attempts at re-igniting the excitement, but without some substance all rallies in the short-term should continue to lead to lower prices (just review your notes on the bear action of the recent past).
Regardless, make no doubt about it - we have felt the first bullet to pierce the body armor of this amazing one-year bull rally. Time will soon tell whether we will look back at this as the beginning of the end of the bull or the great shakeout that finally propelled the market past key resistance. It will depend upon how much faith people still have in the health of the overall economy. If the economy (and earnings) continue to deliver this period will become another one of those manic depressant periods the market seems to tumble into from time-to-time. Given that I finally admitted to be a reformed bear (after having trickled my first few dollars into my 401K mutual funds in over TWO YEARS or more!), I suspect the "contrarian curse" could rear its ugly, but timely, head …. L