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concrete floor

Alan Greenspan

purportedly put under the market Dec. 5 is starting to look like a pair of cement shoes. The

bell the chairman was supposed to have rung is turning out to have been a gong, summoning the executioners.


Dow Jones Industrial Average

fell 2.5% today, while the

Nasdaq Composite

tumbled 7.1%, its seventh-biggest percentage decline ever. The Comp's close of 2332.77 is its lowest since March 23, 1999. Meanwhile, the

S&P 500

lost 3.1% to 1264.74, its lowest level since October 1999. The

Wilshire 5000 Total Market Index

also reached another 52-week low, losing 3.5%.

Market internals told a similarly gruesome tale. Most glaringly, 2.8 billion shares traded over-the-counter, the second-busiest session in Nasdaq history, while declining stocks bested advancers 4-to-1 and new 52-week lows outpaced new highs by a whopping 932 to 55.

Analyst downgrades of

Cisco Ssytems

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Foundry Networks


(among many others), plus rampant concern about economic slowing, were cited as catalysts for today's losses. But tax-related selling and "window-dressing" by mutual fund managers, who want to pretend they never owned the year's biggest losers (i.e., tech stocks), were the paramount cause, traders said.

Traditional "safe havens" such as Treasury bonds, utilities, drugs and precious metals all rallied smartly, but anyone thinking today represented a "capitulation" should consider the following (a repeat/update of points I made earlier in the

Columnist's Conversation):

  • The Chicago Board Options Exchange Volatility Index, or VIX, leapt 16.2% to 35.70, but remains well below its 52-week high of 41.53. You'd think it would at least approach (if not exceed) that level to suggest capitulation.
  • The CBOE's equity-only put/call ratio rose to 0.67 from 0.66 yesterday. Most observers say put buying will exceed call buying -- putting the ratio over 1.0 -- when levels of fear associated with capitulation are evident.
  • The American Association of Individual Investors recently reported 60% of investors are still bullish, while the most recent survey by Investors' Intelligence showed 54.1% of newsletter writers are still bullish.

There's "not anywhere near a shot" of today being the capitulation session that heralds a bottom, said Sam Ginzburg, senior managing director of equity trading at


. You'd need "crazy, frantic selling, guys saying get me out. We haven't had that yet. The Dow is still at

10,319 -- what's capitulated there?"

The Dow violated short-term support at 10,370, its closing low on Dec. 1. But Kevin Depew, technical analyst at

Dorsey, Wright & Associates

in Richmond, Va., said via email, the index would have to fall below 10,200 to violate its longer-term trend. Below that, it has support around 9700, and then 9300, Depew said.

The Nasdaq, meanwhile, tripped below perceived support around 2500, putting it on an apparent collision course with its next technical support at 2200; it was from around that level that the index began its ascent in early 1999. Since January 1999, the index has not been below 2192.

Because 2200 looks "too easy to predict" as massive support, Don Hays of

Hays Advisory Group

in Nashville, predicts the Comp will fall below that level.

Still Eyeing the Bear

In a written report today, Hays repeated his

recent prediction that the index has a "good chance" of dropping to the 1800-1900 range. In a subsequent conference call, he predicted the S&P 500 could fall as low as 1110-1140, but believes the Dow will hold above its mid-October lows of 9654.

"If I'm correct, yesterday started the process to get the last piece of the puzzle into place," he said, forecasting another nine to 12 days of "precipitous declines" that will "finally bring concern to a crescendo." The


decision to leave interest rates unchanged, he said, took away the "last branch" that bullish gurus were clinging to, joining other recently failed rationales for buying, such as seasonality and election resolution.

"Unless I am very much mistaken, the lemmings are not long for this world," Hays said, suggesting the American Association's sentiment survey will drop to 25% bullishness within the next two to three weeks. "The cliff is drawing very close. After their plunge, we'll have to have a few months to grow a new herd."

Hays suggested the Comp and S&P could enjoy 15%-to-20% gains and the Dow may approach its all-time high in a forthcoming rally, during which he expects energy (particularly oilfield services and natural gas), financial, and high-beta (i.e. tech) stocks to outperform. "The time to increase our equity exposure," currently at 55%, "is not far away timewise, but not yet," he wrote.

Critically, Hays believes the market is now only approaching the end of the second phase of a three-stage bear market, with the third stage beginning in late spring. The Dow could decline to as low as 7000 in the third stage he said, while refusing to provide a target for the Comp, other than saying it will fall below 1800.

Looking further out, Hays predicted the Fed will cut rates at least twice in the next four to six months and ultimately lower the

fed funds rate to 2% within the next 12-to-18 months, with the long bond's yield sliding to 4%. "'Here comes the

savior again,'" investors will say about Alan Greenspan, Hays said with obvious sarcasm. Such Fed actions are "not necessarily going to turn the economy around until we get public and corporate debt down, and that can't be solved with lower rates," he added. "It takes time."

Not surprisingly, Hays forecast the U.S. economy is heading toward a recession that will become official by October 2001 and that Japan's economy is headed for a full-blown depression. Because of "major problems" ahead in Europe and Japan, he said the dollar (against which the euro rose to a four-month high today) "will remain


currency, and it's a mistake to look at the current-account deficit" as a forbearer of steeper problems for the U.S.

I guess that's


to take solace with.


Hays, whose managed accounts are up 19% year to date, did have a bit of strut in his talk today, which is somewhat understandable, given his earlier warnings were mainly dismissed and the

bullish gurus continue to get the accolades.

But to the emailer who described me as "the messenger from hell" (and others so inclined), rest assured I take no pleasure (perverse or otherwise) in reporting on Hays' predictions, or those of other anti-bulls. It's my job to make you think, challenge consensus opinions and -- ultimately/hopefully -- help make (or save) you money. By quoting Hays (most notably) and being

generally skeptical in recent months, I've lived up to my end of the bargain.

Finally, for those compelled to attack: How do you feel about the pundits, gurus and press outlets that continually and repeatedly called "bottom" this year, specifically since September?

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.