Editor's Note: Bill Fleckenstein's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published May 8, 2002 on RealMoney.
Casino Dispenses Cisco Uppers
: As everyone knows by now,
ignited an epic rally overnight that only intensified further into the morning. (More about Cisco below). And rumors that Merrill would settle with New York state Attorney General Eliot Spitzer helped add to the warm and fuzzy feelings.
The futures, which already were up a fair amount, sprinted at the open, backed off for a couple of minutes, and took off again, such that a couple of hours into the day, the
was up about 5%, the Nasdaq 100 was up about 7%, the
was up about 1.5%, and the
was dogging it, up about 2%.
Newly roused from the dead, the mighty, mighty SOX led the upside as it levitated a quick 8.5%. The bank stock index also came along for the ride, up a couple of percentage points, with brokerage house stocks flying as well. Suffice to say, in the early going today, no part of the casino was spared the wild revelry spawned by Cisco.
Semiconductor Index (SOX)
Amex Gold Bugs Index
10-Year Treasury Bond
Railing Against the Rally
: After the first couple hours' power jam, the tape basically went sideways for the next few hours. Then we had one surge into the close that basically saw most things end on their highs. As you take in the box scores, try not to let your jaw hit the desktop. Obviously, the leader was the SOX, up 10%, but as you can see, it didn't make that much more progress after the early-morning moon shot. The leaders and followers were pretty predictable, in terms of the Nasdaq being up 8% and the Dow up a modest 3%, so everything essentially played out true to form today. There's not much more to say, other than as you look at the prices, keep in mind that all the best rallies come in bear markets.
Coattails of the Tape
: Away from stocks, the precious metals were down about a percentage point apiece. Fixed income couldn't stand the prosperity and was smacked across the board, with the 10-year down a buck. The dollar loved the prosperity and finally had a big bounce against the yen and the euro.
The Thrill of Defibrillation
: Today's explosion was the tech rally that I have been expecting since
April 24, when we entered the no-news period. Recently, on
May 3 , I got head-faked and threw in the towel on the prospect of a rally, because it looked as if everything was going to sink. However, today's action leads me to believe that this rally will endure at least until
reports next Tuesday, and possibly until
reports next Thursday. Who knows, maybe it will go on a little longer.
: Meanwhile, shorts should be careful, because this could get unbelievably violent before it's through (not that today wasn't violent, in and of itself). As mentioned recently, I have been leery of being short tech stocks, and the only stocks I have been short in the last few days have been Dell and
. Having said that, I purchased two software stocks today that I think could rally, one of which I might be willing to own for a longer period of time. However, I am so dubious about the market's prospects and so worried about a big washout, that I may only own these stocks for a few days.
Therefore, I am not inclined to divulge them. If I expected to own them for an extended period of time, I would, as I have done with the precious-metal stocks I own and with the Annaly Mortgage stock that I mentioned a few days ago.
In any case, had I been fully invested with a bunch of other companies, I wouldn't have had the cash to make the purchase today, so that's one good argument for keeping cash in a bear market. Meanwhile, someday down the road, once we have the big washout that I expect, there will be a plethora of values, though people will be far less rabid to buy them, I believe.
Cisco Kidding No One
: To return to Cisco, let's keep in mind that the company is in essence nothing special -- just the catalyst that came along to release the pent-up demand for a party. People should understand that all we are seeing is a rally, not the birth of the long-awaited tech bottom that has been called so many times. Throughout the history of the Nasdaq, nearly all of the biggest-percentage rallies have occurred since it peaked out at 5000. Nimble traders may want to go along for a scalp. But let's be clear: the rally should not be confused with an end to the decline in tech stocks.
The Sham Behind the Jam Job
: On that score, I'd like to end today's Rap with some comments from a very smart friend who is basically bearish on tech, does great work, and who had the good sense to get long Cisco in front of its announcement: "Got long today ahead of this call ... but reality is, Cisco quarter an absolute joke. This is a relief rally, at best. Product revenue down sequentially, guidance is flat, gross-margin percent makes no sense (again, huge increase in gross profit dollars, with no revenue growth). Book-to-bill, below 1. Deferred revenue, no growth first time ever. Change in revenue recognition through leasing, etc. This is a big sham." And of course, Cisco's profits were helped by the inventory that was written off a year ago, just as many of us suspected ultimately would be the case.
William Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund based in Seattle. Outside contributing columnists for TheStreet.com and RealMoney, including Mr. Fleckenstein, may, from time to time, write about securities in which they have a position. In such cases, appropriate disclosure is made. At time of publication, Fleckenstein Capital was short Dell and Intel, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security. The views and opinions expressed in Mr. Fleckenstein's columns are his own and not necessarily those of TheStreet.com. While Mr. Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to