Tech Shorts Ride the Wave Down

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OK, there is no way to avoid it: This tech market is ugly, even uglier now than the recent Dow drop. The tech-laden

Nasdaq

is off 24% from its highs of just five weeks ago. If the

Dow

were down 24% from its 1998 highs, it would be in the 7100 range.

The Nasdaq index has fallen so far, so fast because the largest tech names -- the ones that have the largest proportional stakes in the Nasdaq -- are joining the doom mentality sweeping the Street. So far Monday,

Microsoft

(MSFT) - Get Report

is off 8%,

Dell

(DELL) - Get Report

is down 12%,

Intel

(INTC) - Get Report

is off 7%, and

Lucent

(LU)

and

Cisco

(CSCO) - Get Report

are both off 10%.

These tech bellwethers have been acting like pacifiers for tech investors during this glorious bull run. As long as the Microsofts and Ciscos could hold on, then so could the index. Now that the big boys are free-falling, there is a sense of panic in techland. While the large-cap move is traditionally a sign of a market bottom, the shorts who have ridden these stocks down are not quite ready to cover their positions.

Early this month, principal Peter Bisani of the investment bank

Prime Charter

balked at Cisco's price tag relative to profits. Bisani told retail investors to sell Cisco short when it traded near 100 per share and about 80 times trailing earnings. Cisco is trading at 88, down 6 9/16 Monday.

Bisani figures shorts should cover when the bellwether hits the 75-to-80 band -- a technical "support" level that sits just above Cisco's 200-day moving average. That's the point to wait and see whether Cisco bounces and props up the Nasdaq.

"If you see these companies come down to acceptable levels, I think we might be done with the correction," Bisani says.

For other money managers who are looking at the market from the shorts' perspective, the question is, how long do you hold on before covering your position? "I've been killed for so long on the short side that I don't have the guts to hang short forever," says Morton Cohen, head of the Cleveland-based money management firm

Clarion Partners

.

Cohen -- who says he is short names such as

Oracle

(ORCL) - Get Report

,

Excite

(XCIT)

,

Infoseek

(SEEK)

,

Cambridge Technology

(CATP)

and the

S&P 500

-- now believes we are officially in a bear market and has "no idea" when it might end. "A lot of money managers will be driving cabs once this is over with," he cracks.

He compares the current worldwide state of competitive deflation with the oil crisis -- and bear market -- of 1972-73. "Back then, the Nifty 50 cracked," says Cohen. "Now we are starting to see that happen again over the last few days."

David Wu, an analyst at

ABN/Amro Chicago

, argues that the shorts don't have enough power to bring down this market. "It's that people are selling, and I think that's a good thing," he says, "because the tech market can't sustain this rate of decline for too much longer."

So, we're hitting a bottom, then? "Well, no, but the action on the market's larger players over the last couple of days has been very good," explains Wu, pointing out that Lucent, AOL and Dell are all significantly down. "The holier-than-thou names are falling sharply and that is always very bullish."

Others think shares of Cisco and other bellwethers need the support of the market more than vice-versa.

"I personally think that until you see an overall warming in the markets, you won't see a snapback in these stocks," says Peter Deininger with

Firstar Investments

. "I wish I knew when that would happen." Firstar has owned Cisco in the past, but Deininger declined to state its current holdings.

For Dell, there doesn't seem to be a fundamental reason it's getting hit so hard Monday, although

Gerard Klauer Mattison

analyst Lou Mazzucchelli has an explanation. Since Dell announced a 2-for-1 stock split for this Friday, shareholders of record on Aug. 28 and earlier will double their shares. But investors buying this Monday will not participate in the split. "That's why, along with the market's general malaise, we have so much selling and no buyers with Dell," says Mazzucchelli, who rates the stock a buy. (His firm hasn't participated in any of Dell's offerings.)

For more info on institutional holders of these stocks, as well as financial statements and earnings estimates, please see the

Thomson Company Reports.