Some Ingredients to Spice Up a Pretty Bland Market Soup

SAN FRANCISCO -- The market is starting to resemble soup that doesn't taste terrible but leaves you thinking it definitely needs something. What that missing ingredient is -- salt? pepper? paprika? -- remains unknown. Various market chefs recommend "better earnings visibility" or "economic clarity" to improve the flavor of trading.

But more and more market watchers say investors should get used to days like these, relatively slow and grinding affairs.

"I think the market is going to be very frustrating and dull for the next eight to 12 weeks," said Scott Bleier, chief strategist at Prime Charter. The market was just that today, and the frustration (i.e., weakness) built toward the close. Major averages ended at or near session lows, but the declines weren't alarming relative to recent history. The Dow Industrials and S&P 500 each shed 0.6%, while the Nasdaq Composite dipped 1.8%.

"The market is stuck," Bleier continued. "The Nasdaq rallied to almost 3000, which is significant resistance, and is now digesting its gains."

Speaking of digestion that would make an anaconda blush, it would take more than three years of flat price movement for the Dow to return to its 20-year normal annualized percentage gain of 14%, according to Louise Yamada, director of technical research at Salomon Smith Barney. Eight-and-a-half years of flat price movement would be required to return to the Dow's 50-year average return of 8.4%, she said in a report published today.

Recognition of this reality "might help to reduce our expectations from the doubles and triples in stock prices that investors have taken for granted over recent years," Yamada wrote. A return to the mean for the Dow and S&P "in the form of a flat equity market" is preferable and welcome, "considering the alternative of a steeper reversion, as experienced by the Nasdaq over the past year."

Yamada remains cautious, but concedes the Dow's next direction won't be determined until it breaks out of its current trading range of 10,500 to 11,000. The technician eyes "a more vulnerable profile" for the Nasdaq, suggesting the index could retest its Jan. 2 closing low of 2291 if near-term support at 2500 does not hold. Most tech sectors remain on Yamada's "avoid" list.

Prime Charter's Bleier isn't as concerned about prospects for tech, but said "if investors think tech and Nasdaq will do for them [this year] what it did in 1999, they're going to be sadly disappointed."

Because of the Federal Reserve's aggressive rate cuts, major averages should remain "relatively stable," the strategist said. "But a bull market is built on an easy Fed and increasing earnings and estimates. Let's face it, we can't see the future [as it pertains to earnings]. We're groping in the dark."

That said, Bleier recommends mid-cap growth names such as Symbol Technologies (SBL Quote - Cramer on SBL - Stock Picks) and Scientific-Atlanta (SFA Quote - Cramer on SFA - Stock Picks). (Prime Charter does no underwriting.) Neither stock is cheap, he concedes, but he believes investors will be willing to pay a premium for compelling technologies, though only if accompanied by consistent earnings growth and stable management.

He compared the aforementioned to Avanex (AVNX Quote - Cramer on AVNX - Stock Picks), which has "incredible technology that is going to bust open bandwidth," but isn't "investible" for long-term players because of the stock's incredible volatility. Avanex fell 10.7% today and is now down 45% since Jan. 23. From Jan. 2 to Jan. 23, the stock rose 75%.

"You cannot invest in stocks that are so volatile" because the dramatic swings are "telling you the market doesn't know what the companies are worth," Bleier said, citing Sycamore Networks (SCMR Quote - Cramer on SCMR - Stock Picks) and Aether Systems (AETH Quote - Cramer on AETH - Stock Picks) as additional examples. "You can trade 'em but you cannot invest in them."

Other names Bleier does like include Cablevision (CVC Quote - Cramer on CVC - Stock Picks) and General Motors (GM Quote - Cramer on GM - Stock Picks).

GM is trading at "historically low" valuations and is the "proto-typical" cyclical play, he said, arguing the "retailers have had their run." The S&P Retail Index fell 3.8% today following a slew of disappointing same-store sales reports.

Additionally, he recommends Chesapeake Energy (CHK Quote - Cramer on CHK - Stock Picks) and Cabot (CBT Quote - Cramer on CBT - Stock Picks), suggesting energy stocks may be experiencing a "once-in-a-decade" multiple expansion cycle and that natural gas prices may not come down once winter ends. (As an aside, a generally insightful reader emailed that another spike in energy prices following Ariel Sharon's election victory in Israel is the biggest, largely unseen, "event risk" to equities right now.)

Bleier's recommendations are predicated on a belief 2001 marks "the first time in years you can make money in stocks for the reasons you're supposed to make money in stocks -- because they're good companies earning money."

What a novel concept.

Decimalization 0.2

Lots of feedback to last night's ditty about decimalization -- thanks as always. This morning, I heard from Scott Peterson, director of media relations at Nasdaq, and figured it only fair to afford him equal opportunity to reply to concerns raised in the piece about Nasdaq's planned rollout.

To start, Peterson said the Nasdaq currently plans a two-phased pilot program, with 15 stocks on March 12 and 150 on March 26, prior to the full implementation on April 9.

As for the presumed challenges of implementing the plan, he noted Nasdaq is currently undergoing a testing program with registered members of the National Association of Securities Dealers. Additionally, because approximately 10% of New York Stock Exchange share volume is traded "off floor" in the Nasdaq's InterMarket system, "as the NYSE [and Amex] have been moving step by step toward decimalization, we have been moving with them in lock step," he said. "We have been gaining in experience that has been very valuable. We feel very confident."

The media rep pretty much deferred on the scuttlebutt regarding NYSE specialists aggressively front-running orders since the advent of decimals, or whether the Nasdaq's market maker system offers any protection from similar alleged abuses.

Regarding concerns about liquidity and decimals, Peterson had no specific information, but said the Nasdaq's multiple market maker system may offer an advantage over the NYSE's specialists. "We'll see," he said.

Indeed, we shall.

For additional information about the NASD's decimalization plans, Peterson recommended this primer on the exchange's website.

Similarly, a NYSE spokeswoman referred me to this (outdated) report when I followed up with the Big Board today. A promised call back was not forthcoming by press time.