Let's Throw a Towel-Throwing Party

SAN FRANCISCO -- Expectations among market players for a "tradable rally" in the Nasdaq Composite were dashed today, as the index fell another 1%. True, the Comp did climb off its session low around 2643, to close near 2707. But anyone taking solace in the Comp's minicomeback today got a rude awakening after the close when Gateway (GTW Quote) and Altera (ALTR Quote) issued separate profit warnings.

In reaction, S&P 500 futures were recently down 8.60 to 1326.70 in Globex trading, while Nasdaq 100 futures were off 49 to 2481.

In other words, the market is sticking to its recently rediscovered -- but historic -- role of confounding as many people as possible as often as possible. Frustrations resulting from the market's machinations are becoming evident in the growing number of downgrades by sell-side analysts. Concurrently, we're seeing the beginning (but just the start) of erstwhile gurus throwing in the proverbial towel (which is no doubt filled with blood and spit).

Most glaring of the towel-throwers today being Steve Milunovich, global technology strategist at Merrill Lynch, who attained that highfalutin' title on Sept. 26, and might now be wishing he had remained merely a regular old analyst, albeit a highly regarded one.

Today, Milunovich wrote "technology appears to be in a bear market" (appears?) and that while tech stocks are "getting oversold" and "could stage a rally, we doubt the rally would last long."

The most shameful/outrageous part of the whole report was Milunovich's claim/declaration that "we remain cautious."

Funny, the tech strategist didn't strike me as cautious in his interview in the Nov. 27 issue of BusinessWeek. Nor back on Oct. 25, when he led several other Merrill tech analysts in defense of a cadre of optical-networking and contract-manufacturing names.

That attempt to impersonate the 1984-85 Chicago Bears came just two days after Milunovich unveiled -- with accompanying media fanfare -- a basket of stocks that Merrill expected to outperform over the ensuing six to 12 months. There's still a ways to go, but Milunovich's "techfolio" is starting to resemble more The Great Cornholio of Beavis and Butthead fame.

Since Oct. 23, Cisco Systems (CSCO Quote) is down 1.6%, EMC (EMC Quote) is off 28%, Nortel (NT Quote) is down 47%, Solectron (SLR Quote) is off 34%, Adobe Systems (ADBE Quote) is down 8.5%, Cadence Design Systems (CDN Quote) is off 11%, Pivotal (PVTL Quote) has fallen nearly 35%, Sanmina Holdings (SANM Quote) is down 24%, and Sun Microsystems (SUNW Quote) is off 33%.

Of Milunovich's original picks, only DST Systems (DST Quote), up 34.4%, has risen since Oct. 23. Admittedly, the Comp is down 22% during the same time. But the S&P 500, which gained 0.4% today, is off just 3.9%, while the Dow Jones Industrial Average is up 3.5% since Oct. 23 after rising 1.2% today.

One last bit of dramatic (or is it pathetic?) irony: Back on Oct. 25, Milunovich said: "To become more bullish on technology, we'd like to see more pessimism."

If Milunovich, who was unavailable when I called (admittedly late in the day in New York), is trying to pull off a self-fulfilling prophecy via some kind of reverse psychology, then I say: More power to him.

He's going to need it, especially given the news after the bell.

Towel Throwing, Part 2

Then there's Scott Bleier, chief investment strategist at Prime Charter, who laid out a vision regarding how the Nasdaq's current situation will resolve itself.

Fair Warning: It is not a pretty picture for those long.

"This will end in a mirror image of the magical period from Feb. 1 to March 10 when the Nasdaq rose in a parabolic strike -- when any momentary pause was met by ferocious buying," Bleier said. "Calling the number for the bottom is as difficult as calling the top [back then] but you have to get people talking about stocks going to zero [and] retail clients saying 'liquidate.' "

In other words, a level of fear commensurate with the level of greed evident in the early part of 2000. We're getting close to those levels, Bleier contends, but we're not there just yet.

We're likely to get closer still tomorrow, judging by the trading activity this evening. Whether tomorrow marks the big "capitulation" session many traders are nervously awaiting or the heralded "reversal" session optimists are hoping for remains -- of course -- to be seen. Regardless, it's looking like it will be another ugly morning on Wall Street.

For whatever it's worth, I don't consider Bleier a "guru." For a variety of reasons, but most prominently because he's willing to admit when he's been wrong -- as he did regarding a recent prediction the Nasdaq would establish a "marginal new low" and then rebound.

Towel Throwing, Part 3

EMC fell 7.9%, and no doubt a number of investors who own the stock are wondering "what happened?" The answer is, nothing -- at least not on the fundamental front.

If that seems vexing or unfair, consider that EMC was up over 45% in the year to date before heading into today's session.

Meanwhile, top mutual fund holders of EMC, according to Morningstar.com, include (TWCUX Quote)American Century Ultra Investors, which is down 18.6% in the year to date; (JAVLX Quote)Janus Twenty, off 26.4% for 2000; (VWUSX Quote)Vanguard U.S. Growth, down 16.4%; (ACEGX Quote)Van Kampen Emerging Growth, off 11.5%; and (APGAX Quote)Alliance Premiere Growth, which is down 17.6% this year.

The point being, if you were the manager of those funds (or a host of others down for the year), wouldn't you look to secure some gains in the stocks that still had them?

Time and space constraints prohibit me from doing it tonight, but perhaps it'd be a worthwhile exercise to look at the funds with the biggest losses in the year to date and then find their largest holdings that are still up for the year. A betting man, which I am verboten from being, might bet against those names.