Wildbill
09-24-2002, 09:16 PM
Although I am not fond of the market situation right now, I think a lot of the steam that I figured was coming out in October has made an early exit. I see some intraday rallies that look close to building at least modest momentum. One key trend that has happened with regularity has involved the big names of the late 90s. CSCO and YHOO in particular go on a run just about this time every quarter. My thinking is they get oversold due to window dressing as no mutual fund wants to be seen holding these falling stars and sure enough the selling has been strong up until now. Then the first two weeks of the new quarter they go up in nice runs as they approach earnings and then as with most stocks, they fall on earnings. The problem for these names is they follow through on that fall with a collapse that has led them to these rather low prices. Whether they are fundamentally something to hold for years, the jury is still out on that as I think both still have a lot of clout and talent in what they do, but obviously what they do isn't where you want to be right now. Still I see a distinct pattern and I don't see why it won't continue this quarter as I think a good deal of the downside has already come out of them and the earnings warnings haven't been particularly worse than other quarters. The talk of a plus 3% GDP number is surfacing and that could actually lead a modest rally in what normally is a bad month to hold stocks. I felt certain all quarter the GDP would be close to 3%, but I hear it might be even better. With this bit of news and the big declines already seen, I think I will slowly and cautiously enter trading positions on these names and a few other stocks with the hope of picking up 15% working up until their earnings. After that I will stick by my premise that the market should have a nice rally going into the year end as the positive GDP number is something that I feel most people have discounted too much. If the economy has a full year of close to 3% growth and this point starts to be emphasized, I don't think stocks will falter much longer. I don't think earnings will be great just because of depreciation changes and more conservative accounting, but I see beyond that and see that lower interest rates and downsized work staffs are leading to a boom in cash flow. After all, if you are an investor what would you rather see, a company that generates real free cash or one that can say they made accounting earnings???