Bill Meehan
The old noggin is mighty worn out after almost 20 hours of nonstop thinking, talking, reading and writing -- not to mention Wednesday's rocky roller-coaster ride. So I'll keep it short and perhaps a bit pithy, but no promises.
Life Beyond Cisco
Other than the obvious -- the once-invincible Cisco (CSCO Quote - Cramer on CSCO - Stock Picks) and the ripples, rather than tidal waves, it caused in the tech pond -- there were a few interesting tidbits to chew on. A couple of them are technical in nature, and another is one of the few relatively important economic reports due out this week. My old buddy Tony Dwyer of Kirlin Holding has been keying off the downtrend line on the Nasdaq 100 Unit Trust (QQQ Quote - Cramer on QQQ - Stock Picks), which was successfully defended. I believe that the trend line might indeed mark a level that it can bounce from, but I'm still looking at momentum indicators giving sell signals and telling me that it won't hold for long. Of course, that can change, but these indicators aren't extraordinarily sensitive, as they're geared to calling intermediate-term moves. The other technical indicator, in addition to the continued negative breadth on the Nasdaq and the trend of downside volume far exceeding upside volume, was the uptick in bullish sentiment to 61.8%, according to Investors Intelligence. (The failure again to take out Dow 11,000 isn't something that I find very important.) It's simply beyond credulity, at least to me, that a major bottom has been made without a very significant, gut-wrenching decline in bullish sentiment. And that still has yet to happen.The Economic Fundamentals
On the fundamental side, the fourth-quarter productivity
report was about as bad as Cisco's
guidance, but hardly as vague. That nonfarm productivity increased at only a 2.4% annual rate isn't a cause for great gnashing of teeth, but the 4.1% increase in unit labor costs was very disconcerting. Unadjusted for inflation, hourly earnings increased 6.6% and exceeded the rate of productivity growth. Nothing good there for margins, even if the economy was doing fine. Productivity growth is likely to continue to wane as the economy slows, and weakness within the technology sector will really be a drag on this measure. Some economists maintain that the technology sector, not the use of technology, accounted for virtually all the recent past's "productivity miracle." And if Cisco won't increase earnings this quarter or next -- with hope that the domestic economy will improve in the second half and won't have a negative impact on foreign sales before we get there -- how many tech companies will? And the Fed's easings aren't likely to be met by a renewed taste to borrow and spend by already heavily indebted consumers. It seems to me that the whole ball of wax is riding on Alan Greenspan's actions, but it's quite doubtful that they'll have the same effect as those that have previously marked his watch. To wrap things up, I saw little to change my opinion that the Nasdaq Composite and Nasdaq 100 are likely to continue heading south, or that the minimum damage looks to be a retest of the lows. The S&P 500 also looks far from healthy. That said, Wednesday's action is hard to dismiss out of hand, especially with the futures going out well above fair value. However, rally attempts should still be viewed as selling opportunities in the tech sector. Absolute value seems to be the best chance for happy trails on the Street of Dreams -- at least until sentiment turns quite a bit more ugly, as the excesses of the past get cleansed out of our economic system.
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