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RedHerring.com Investor Center
Article: Personal Capital
Author: R. Scott Raynovich

Waiting for the bottom

Does anybody remember Mr. C? He's one of this column's most important sources, a top-secret hedge fund manager who employs a no-nonsense mix of technical and fundamental analysis. Over the last 12 months, he's been more accurate than anybody else I've spoken with.

For example, in August 2000 he was unduly pessimistic, which was a radical departure from his bullish attitude in 1999. In fact, he guaranteed then that the economy was headed for a dramatic slowdown, that the market was going down, and that a number of technology companies had no way of producing the kind of earnings growth needed to justify their high valuations.

Then, in December, as things were getting worse and the number of "bottom callers" proliferated, Mr. C became even more pessimistic. He saw no reason for the market to rally. "We're going to 1,900," he said.

In fact, there was no better logic than that employed by Mr. C at the time.

"What's the motivation for buying a stock right now?" he asked. "Because there's value? Hardly. Because the fundamentals are good? Hardly. Because we have technical support? Hardly."

NASDAQ 1,500?
Following that logic, you've got to ask the same questions now, and unfortunately, there is still no compelling reason to buy stocks. Fundamentals are not going to improve. The prices in many cases are still not cheap. And even the stocks that are cheap -- most notably many leading companies in the semiconductor business -- have no near-term catalyst to justify a rally.

Yes, it's an altogether depressing story.

Several readers remember Mr. C's calls, and have written in demanding to know what he thinks now. I got him on the phone following Tuesday's rate-cut news and subsequent Nasdaq decline, to get his perspective on the whole disaster.

"I'm not an event or news person, so I don't care what Greenspan does," says Mr. C. "The market was going to do what it was going to do. Every single day I come in here to look for a bottom, and every day I get disappointed."


"Yes, it is depressing," says Mr. C. "And I'm not making money because it's too scary to short. I want to see the bottom, but we need to see the downward momentum decelerating, and that's not happening. The percentage of stocks below the 50-day moving average has gone up."

A new support target?

"I don't really have a target anymore, but if there was a target below 1,900, it's 1,500."

Other analysts are equally nervous but have more optimistic targets.

A leading technical analyst, Ralph Acampora, director of technical analysis at Prudential Securities, assigned a primary support target of 1,891 and a secondary support of 1,769 for the Nasdaq on Tuesday. For the Dow Jones Industrial Average, Mr. Acampora assigned a primary support target of 9,654 and secondary support of 8,676.

The Nasdaq closed below Mr. Acampora's primary support number on Tuesday. Let's hope we don't break that secondary support number of 1,769 -- otherwise we could be on our way to the much-feared 1,500, cited reluctantly by Mr. C.

Nobody wants to go there. But we may have to go down further before we can head back up.

R. Scott Raynovich, former investment editor of RedHerring.com, is executive editor of Light Reading, a global site for optical networking. He has covered technology markets for more than seven years.