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Hope Springs Eternal: Gurus Cling to a Fed Ease, Election Resolution

Anti-bears are optimistic, non-bulls are cautious as all eyes look for a market bottom.

Like a Wall Street-sized McDLT, the hot side of the stock market -- blue chips -- stayed hot today while the cool side -- tech stocks -- stayed cool.

As the

Dow Jones Industrial Average

rose 1.8% behind strength in cyclicals such as


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, the

Nasdaq Composite Index

fell 1.1% despite strength in semiconductors and bellwethers

Sun Microsystems

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Elsewhere, the

S&P 500

rose 0.8% while the

Russell 2000

shed 1.4%, reflecting big declines in many middle-tier tech and biotech names such as

United Therapeutics

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Protein Design Labs

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Mercury Interactive



One thing growth-stock optimists have been looking for as a sign the worst has passed is stocks reacting well (or not terribly) to bad news. Techs will get yet another opportunity to pull the trick tomorrow in the wake of bad news after the bell from


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In after-hours trading, shares of Xilinx were down nearly 10% and 3Com by more than 26%, according to


GuruVision: Hobgoblins of Consistency

Similar to the market itself, the gurus kept true to form this week: non-bulls remained cautious and the anti-bears stayed optimistic.

Among the former, Thomas McManus, equity portfolio strategist at

Banc of America Securities

, took overt action, reducing 2001 earning estimates for the S&P 500 to $59 a share from $61, and his price target to 1525 from 1600. McManus left his recommended allocation unchanged at 60% equities, 35% bonds and 5% cash.

If the price target proves correct, "it will be the first instance since 1998 when the S&P

which peaked a 1527.46 this year did not achieve a higher close in a given year than its highest point in the previous year," he wrote. "Such has been the amazing run we've enjoyed" that such a possibility seems outlandish. But the phenomenon has occurred 23 times since 1928, including nine times since 1968.

Elsewhere, Don Hays of

Hays Advisory Group

reports he is "aching to be bullish" in the wake of recent damage, but laments it is "still too soon."

Hays can't pull the trigger largely because most strategists and sell-side analysts "are desperately hanging on" to the bullish scenario and "the herd is still hanging on with them."

According to the

American Association of Individual Investors'

sentiment survey, 60% of retail investors remain bullish. "It takes a decline to at least 25% before any significant buy signal is given from this indicator," the strategist noted.

Endearing himself to this columnist, Hays also spared few punches for the "financial news programs" and those gurus who refuse to give up the bullish ghost.

"The little bit of optimism displayed early last week by a slightly sweating Abby


, I presume, Tom



but possibly


and Joe



but just possibly


with an outside chance of


, plus so many professing that the


was preparing to cut interest rates, plus the expectations of a rally after the election quagmire has ended, has so far kept the lemmings running," Hays wrote. "I don't think it will be much longer, however, before reality sets in. Bullish hopes based on those catalysts

Fed ease and election resolution are very much misplaced in my opinion."

Hays reiterated a

prior prediction the Comp could reach 1800 to 1900 within the next two to five weeks, adding that the index would trade with a still historically high price-to-earnings ratio, even should it suffer such further devastation.

Addressing the issue of the Fed, Greg Smith, market strategist at

Prudential Securities

, predicted a bias change (or hints thereof when Chairman

Alan Greenspan

speaks tomorrow) would be "at best a minor positive" and warily considered the alternative scenario: "If the Fed says they will remain cautious the market will be down a lot, not just flat."

Hobgoblins of Consistency, Part 2

As Hays inferred and I


Goldman Sachs'

Cohen reiterated her bullishness yet again last week. Nothing (ahem) new from Abby today, but

Merrill Lynch's

Christine Callies did seek to build on the bullish views she expressed


"The technology sector and Nasdaq may have already discounted a deceleration in capital spending that has not been experienced in almost three decades," Callies wrote in a report published this morning. "This degree of weakness does not seem likely in our view. As expectations rise to meet reality, stock prices should go along for the ride."

Despite tipping her hat toward tech, Callies wrote that the "next phase of the rotation" should land on "growth cyclicals," recommending




Liz Claiborne




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. (Merrill Lynch officials were not available to disclose whether the firm has done underwriting for the aforementioned.)

As for the uber-bulls, Jeffrey Applegate, chief investment strategist at

Lehman Brothers

, concedes "feeling much more like the bug" than the windshield these days, which is understandable given his tech-heavy Strategy Portfolio was down 22.5% year to date through November.

"Still, we think the bulk of the stock market and tech stock decline, both in time and price, is behind us," Applegate wrote. "And even under fairly unpleasant scenarios ... the

tech sector should reassert its outperformance over the next several years."

With similar bravado, Thomas Galvin of

Credit Suisse First Boston

suggested "we are close" to a bottom in tech. After acknowledging "it is always impossible to predict the actual date of a market bottom," the strategist nonetheless forecast "a low will be established within the next 40 trading days, as earnings preannouncements draw expectations to distinctly conservative levels, the presidential mess ends and the Fed capitulates that interest rates are too high."

Notwithstanding Galvin's recent failures (among many others') to accurately call the bottom, he also made a host of specific recommendations this week, which included


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JDS Uniphase


, and


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, three of Monday's bigger tech winners. (It could not be immediately determined whether CSFB has done underwriting for the aforementioned.)

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.