Little Engine That Couldn't

SAN FRANCISCO -- Friday's What A Week column quoted a hedge fund manager commenting that for all the focus on the Federal Reserve, the market's short-term performance is really driven by earnings and expectations thereof.

The source concluded that the high-profile warnings and words of caution from myriad companies during the earnings season now winding down would keep any upside under wraps, regardless of the growing sentiment the Fed will remain on hold, at least until November.

In the wake of that story last Friday, the hedge fund manager -- who shall remain anonymous -- emailed an observation that I (among others) was placing too much emphasis on Cisco's (CSCO Quote - Cramer on CSCO - Stock Picks) earnings report.

"Even a good report can't rally the market for long," he wrote on Monday (I swear). "Cisco, despite its power, does not make the market."

Those words leapt to mind as Wednesday's action unfolded (the hedgie emailing to say -- in so many words -- "I told you so," helped, too). We all know what happened, right? Cisco came out with a glowing report and conference call Tuesday night. The chat rooms (high-minded and otherwise) were filled with ebullient comments. The futures ramped in the overnight market, leading to a big jump at the open Wednesday morning. And then, like sands through the hourglass, the rally slowly but steadily slipped lower.

Once as high as 3936, the Nasdaq Composite closed up a scant 0.1% at 3853. The S&P 500, undercut by grotesque pictures of Eli Lilly (LLY Quote - Cramer on LLY - Stock Picks), fell 0.7% to 1473 after trading as high as 1490, while the Dow Jones Industrial Average slid 0.7% to 10,905.83 after trading as high as 10,978.

So are the days of this (soap) operatic market -- which isn't likely to reach a crescendo anytime soon.

"Until we get August out of the way, I'm not sure we'll get any clear trend," said Anthony Cecin, manager of Nasdaq trading at U.S. Bancorp Piper Jaffray in Minneapolis. "I just think there's no consensus in this market [and] a lot of the money is on the sidelines, or at the Hamptons."

Cecin, who described the market as in "nobody-knows land" for the time being, nonetheless believes the market's general direction will be northward hereafter. Part of this "gut feel" stems from the recent performance of IPOs, including several with which the trader is intimately familiar.

In a "jam-packed week" of IPO activity, he said, U.S. Bancorp Piper Jaffray had an underwriting role in three deals today, which posted a mixed performance. Repeater Technologies (RPTR Quote - Cramer on RPTR - Stock Picks) jumped 79% from its IPO price, while RadView Software (RDVW Quote - Cramer on RDVW - Stock Picks) slid 10% and TVIA (TVIA Quote - Cramer on TVIA - Stock Picks) ended unchanged.

Clearly, investors are being discriminating, but Cecin observed deals in the "hot" spaces -- like Repeater, a supplier of wireless telecommunications technology -- are being well received. Additionally, recent IPOs such as Avici Systems (AVCI Quote - Cramer on AVCI - Stock Picks) and SpeechWorks International (SPWX Quote - Cramer on SPWX - Stock Picks) have had stellar aftermarket performance, he said.

Indeed, Avici is up 346% from its July 28 offer price of 31 after Wednesday's 9% rise. SpeechWorks is up 391% from its July 31 offer price of 20, despite dipping 2.5% Wednesday. U.S. Bancorp Piper Jaffray was involved in the underwriting syndicate for SpeechWorks.

Most importantly, "deals are getting done," Cecin said. "Just not at the manic levels they got done earlier in the year."

So perhaps, for IPOs as well as the overall market, maybe the key really is all about expectations, as the hedge fund source declared. Perhaps if more investors stop expecting things to go back to the way they were (memories, like the corners of your portfolio... ) we could all stop lamenting days like Wednesday as insufficiently bullish. Instead of falling all over ourselves trying to figure out when the next big rally occurs, maybe we should admit this is as good as it gets (an overrated flick if there ever was one). Maybe we should be glad things weren't worse Wednesday and realize 2000 is going to end with the major averages flat or down a bit.

Even a generally bullish player like Cecin concedes "that wouldn't be the worst thing in the world after three or four years of hypergrowth" because it would "give fundamentals time to catch up to valuations."

Or think of it this way: If expectations are lowered, it'll be that much easier for them to be exceeded.

One More Thing

Caught up with Peter Green, technical strategist at Gerard Klauer Mattison, whose Aug. 3 prediction the Nasdaq would enjoy a bit more upside from that day but likely top out around 4000 looked pretty darned good Wednesday. Prescient, even.

It's too early to declare the session as anything terribly significant or worrisome, Green said, but he predicted the index is "likely to trade sideways to slightly lower" in the coming days.

The risk is that many stocks in the Nasdaq 100 are "topping out," he said, suggesting "the Comp will have problems" if Cisco takes out 64 1/2.

After touching 70 intraday Wednesday, Cisco closed up 3.2% at 67 13/16.