Feeling the Pulse

Ask institutional money managers where this market is heading, and you'll get two different kinds of answers.
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I'm not going to regale you with tales of trading successes because the last month has been about scratching and clawing. While there's been some joy in Mudville, it has not been the stuff dreams are made of.

But I have had the good fortune to have spent the better part of the year in meetings with

Arnhold and S. Bleichroeder's

institutional clients. Seventy institutional meetings will give anyone an appreciation for investor sentiment, and my sense is that the overriding theme is

there is no consensus

. Institutional sentiment is a mosh-pit of either caution and concern -- or steadfast bullishness.

Here's what I've been hearing:

The Caution and Concern Camp

This group runs the gamut from: "The great bull run begun in '82 is fading fast," (which comes from one of the more erudite investors I have met in my 13 years in the business); to "There are just not enough bases to believe the market can work substantially higher," (from a top-tier momentum investor); to "The bubble has burst, the

Fed

is going to continue tightening and this isn't a favorable scenario for equities;" and finally, to "The

Nasdaq

has just been hit big, and it should consolidate before any meaningful leg higher."

The Steadfast Bullish Camp

This group comes in two sizes. The "What's changed?" scenario says:

"The economy is still strong, the Internet is still growing, jobs are still being created, improving tech products are raising the productivity bar, tech and telecom are going to have good earnings, and there's no inflation. So what if stocks have corrected?"

The second group remains a little more hopeful, saying:

"So Nasdaq corrected a lot, and Internet and biotech issues are down huge. But semiconductors, networking, and "old tech" are still bullish. There's no reason why the Nasdaq can't be the Nasdaq again after a short period of sideways action."

Also in this camp are those who believe the Fed won't tighten because "inflation is not going to be a problem" or "stocks are already down a lot. The Fed's job is done."

My Take

I am in the caution and concern camp, not the diehard bullish camp because:

    I don't believe the Nasdaq can shrug off a 35% correction without some residual effects. Residual effects for me include: intermittent rallies and selloffs while some stocks stay and/or get strong; some consolidate; and others make Mario Mendoza look like Mike Schmidt. (If you need help with this one let me know.) The sobering fact is that the combination of these residual effects says the Nasdaq is not making a new high for a long time. How long? I don't have a clue. But it is interesting to recall that it took the S&P 500 more than two years to make a new high following the '87 crack.

    There are more Internet stocks closer to zero than to their highs. This group was like a steroid to the Nasdaq in late 1999 and through early March 2000. Let's say Nasdaq had a case of gynecomastia and its steroid cycle is over.

    Tech stocks are having a hard time embracing good news, and they can't ignore bad news. I am a big "News-Response-Syndrome" believer (so-called by my former partner at Lehman Brothers, Steve Shobin) and the inability of tech stocks to embrace good news and/or ignore bad news is the ultimate sentiment gauge. Right here it is safe to say tech ain't doing the former -- but is doing the latter. This is a disappointing combination.

    Hope is a four-letter word. While I wrote above that there is no real consensus, I am flabbergasted that some investors expect the Nasdaq to come back without so much as a quarter of sideways action. Good bottoms are built around fear and not complacency, and I believe firmly that many of the investors I have had the good fortune to meet are too complacent.

    Further, they are hoping against hope that tech comes back strongly so they will be bailed out. Call me old school (And if you do, please do it politely: I don't understand where all the hostility comes from these days.) but I find it odd that investors who have built careers and fortunes around

    investing

    are now hoping the Nasdaq rallies because they've been garroted in the last month.

    Bottom Line

    The correction is not over because:

    • There just isn't enough fear. Fear builds bottoms, not complacency.
    • Hope is neither fundamental nor technical. It is, however, a word you often used in high school when discussing girls with your buddy: "Gee Danny, I hope Kerry likes me."
    • Even if "old tech" like Applied Materials (AMAT) - Get Report, Intel (INTC) - Get Report, Oracle (ORCL) - Get Report, Sun Microsytems (SUNW) - Get Report and Cisco (CSCO) - Get Report are able to flex their muscles a la Arnold Schwarzenegger and stay bullish in a weak tech environment, they are going to have to work tons harder to make up for the shortfalls in the now 98-pound weaklings.

    We'll all know there is a bottom when tech begins to absorb bad news, or embraces good news. Until then, it is all bad news.

    Stocks I Like

    Pharmas have shown nice life of late and have done it as a team, except for

    Bristol-Meyers

    (BMY) - Get Report

    . Our pharmaceutical analysts have buy ratings on

    Alza

    (AZA)

    , the soon-to-be combination of

    Pfizer

    (PFE) - Get Report

    and

    Warner Lambert

    (WLA)

    ,

    Pharmacia

    (PHA)

    (which our pharmaceutical analyst Rick Stover has taken to calling "Porsche Pharma") and

    Schering Plough

    (SGP)

    . The technicals on these stocks are all favorable, save Schering Plough.

    Other large-cap pharmas with favorable patterns include

    American Home Products

    (AHP)

    ,

    Astra Zeneca

    (AZN) - Get Report

    ,

    Glaxo

    (GLX)

    ,

    Eli Lilly

    (LLY) - Get Report

    and

    SmithKline Beecham

    (SBH) - Get Report

    . Strong charts among the generic pharmas are

    Mylan Labs

    (MYL) - Get Report

    ,

    Teva Pharmaceuticals

    (TEVA) - Get Report

    and

    Watson Pharmaceuticals

    (WPI)

    .

    In addition to these patterns, I like

    King Pharmaceutical

    (KING)

    . The stock is currently trading above its upward-sloping 50- and 200-day moving averages and is in an improving sector. I think the stock can work into the low 60s. I recommend a sell-stop at 43.

    John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Roque appreciates your feedback at

    jroque@thestreet.com.