October 6, 2000

Posted Daily Between 5 and 6PM EST

by Lance Lewis

Wall Street Stock Commentary: Humpty Dumpty Falls Down

Asia was mostly lower last night. Japan fell a percent (back below 16000 again), and Hong Kong was closed. Europe was near unchanged as we approached the US open, although Finland was down about 3 percent. The futures were near unchanged in anticipation of the unemployment number. When it hit we got a pretty steep selloff and then a rebound and then another selloff and so on, till finally the futures ended solidly in the red although near even with fair value. We opened flat, had a small bounce, and then a rumor about Morgan Stanley (MWD) taking huge losses in their telecom junk bonds began to make the rounds. That sent us off into the deep end of the pool, as we drove straight down about 2 percent in about 10 minutes. Then, we had a bit of a bounce for a couple hours as the rumor hit Hee Haw (CNBC), and we began to drift lower again, hitting new lows for the day. The last hour saw us bounce a little going into the weekend. Volume heavy again (1.1 bil on the NYSE and 1.8 bil on the Naz.) Breadth was more than 2 to 1 negative on both casinos. Big gainers were in the utilities as the UTY bounced a couple percent. Losers were where everybody else was, but the big losers were in the Internet stocks as the DOT fell 6 percent.

The unemployment number this morning was 3.9% in September, back to the 30-year low we hit in April and down from Augusts 4.1%. Obviously, the real economy did not receive the memo on the "slowdown" that keeps being batted around in bullish financial circles. This report is key, firstly because we didnt melt up on it and ensure a rally into expiration, and secondly (and more importantly) it is key because this ties the Feds hands. The much talked about "Greenspan put" is not available due to the continued strength in the economy. The Fed will not be able to rescue this piggy with rapid rate cuts this time. If this were a chess game, Uncle Al would need to tip his king checkmate. VECO, which is a semi equipment maker, warned this morning and had its limbs ripped off, falling some 35 percent after being just a few days off an all-time high. Other equipment makers were hit as well although many managed to recover some of their losses. AMAT, in particular, yawned at the warning and closed up 2 percent. The SOX, however, was not so lucky as it fell 4 percent, hitting a new low for the move. PC stocks were mixed. GTW seemed to take the most punishment, losing 5 percent. Most of big cap tech was mostly lower. ORCL fell a percent, and SUNW and CSCO 2 percent. MSFT managed to close in the green by a tad. WCOM, of note due to yesterdays margin call news, fell another 3 percent. INTC and MU both continued their marches lower and obviously contributed to the SOX weakness. Handset-land was lower as NOK was hit for 5 percent and ERICY for 2 percent. Elsewhere in telecom equipment, NT was hit for 7 percent, but LU managed to close a tad in the green. Internet stocks were blitzed. By now, everybody knows about William Shatners PCLN and its death-march to zero. It fell another 4 percent today.

After the close, a class action shareholder lawsuit was announced against PCLN.

So, it appears Scotty may have been telling the truth for once when he told Captain Kirk, "Shes breeeakin apart, Kaptin! I cant hold her together!" Expect a lot more of these type suits, and unfortunately quite a few of them have a lot of merit, although I know nothing about the merits of this particular case. A lot of games have been going on for quite a while, and we can only hope that the guilty parties can be found when the dust settles before the files make their way to the shredder.

YHOO fell 4 percent, AMZN 6 percent, and fleabay (EBAY) 7 percent. Recent bulletproof highflying techs like JDSU, SDLI, SEBL, MXIM, etc were whacked as most fell around 4 to 7 percent. Financials were clubbed today as well obviously as the MWD rumor spread.

The banks opened up initially in the green with a "what me worried?" look.

The brokers, however, were weak right from the open and only got worse as the day wore on. The XBD ended the day down 6 percent, and MWD fell 9 percent. The banks got a whiff of the MWD rumor and decided they better head into the red too. The derivative king led them into the hole, turning red first and losing 4 percent. The BKX also lost 4 percent. We got a detout on the credit card industry, and the credit card trash was whacked right from the open. PVN fell 11 percent, HI 5 percent, and KRB 8 percent.

As I have said before, it has amazed me for several weeks now the way gamblers have been crowding into these brokers and credit card trash, but if its green and moving they love it.

Retailers were mostly lower as the RLX fell 2 percent to 785, hanging ever so precariously as it awaits the Nestea plunge and confirmation of a US recession. HD fell 5 percent after LOW warned this morning, and WMT fell another percent.

Oil rose 33 cents, and the XOI and OSX were both down about a percent. One of you emailed me and asked why I felt oil would fall when stocks did, so I thought Id explain. Basically, I think it will fall in order to price in the demand shock from the resulting US and/or global recession that would accompany a big dislocation in the US casino (errrr... I mean stock market), but the dollar weakness that should come with that should prevent oil from seeing its 1998 lows.

Obviously, many highflying oil and oil service shares will be in for a tumble as well if oil takes a dive. The trend for oil is certainly higher over the longer term, but I think it's due to get smacked when stocks do. Gold fell $1.30, breaking the $270 mark. The XAU and HUI did not disappoint those rooting for the end of the gold industry as they plunged 2 percent to new lows. The dollar was a touch higher against most currencies. The zero had a pretty good day since it was only down a touch against the buck. After all, the longer we can drag out the slow bleed to zero, the better, right?

Its hard to say now whether the euro is headed for a final flush to fresh lows or another intervention will be used to turn it.

Well find out soon enough I suppose.

Treasuries were a bit higher as the yield on the 10yr fell to 5.81%.

Traders commitments were released today and continue to show the commercial traders (the "smart money") with a record net short position in the spoos, although down ever so slightly from two weeks ago. Commercials were also net short the NDX after being net long two weeks ago. Golds commitments slipped a little although commercials are still net long. Commercials were heavily long every foreign currency except. (you guessed it) the zero, where they actually increased their net short position. So, that indicator would argue that a plunge in the euro is still on the way.

For once the unemployment number did not provide a ramp job into euphoria-ville, and Humpty Dumpty fell on his face. Today's break was fairly ugly and significant. I seriously doubt that all the kings men and all the kings horses can put Humpty D. back together this time. What happens early next week is anybodys guess, but I tend to think the trip downtown has begun. And, while there may be bounces along the way, people should use them to exit. I do not think earnings announcements over the next couple weeks are going to turn this market around. On the contrary, I tend to believe that cautionary forward statements by reporting companies will only add to the selling. One day here soon, it will simply be too late to get out, and the ship will sink beneath the waves taking everybody in close proximity down with her. It's best to simply leave now before the herd tries to jam threw the eye of the needle all at the same time like they always do when these manias end...

http://216.46.231.211/bearthoughts.htm

-- Carl Jenkins (Somewherepress@aol.com), October 06, 2000

Answers

This is a pretty gloomy outlook, but one I've been fully expecting for a long long time.

-- Chance (fruitloops@hotmail.com), October 06, 2000.

The author fleshes out his reasons for this quite well.

-- Wayward (wayward@ebtv.net), October 06, 2000.

As I see it this is fasten-the-seat-belt time -- the next few weeks should be Holy Hell.

-- RogerT (rogerT@c-zone.net), October 06, 2000.