Last Week Just Became a Fond Memory - TheStreet

Hopes for an extension of last week's robust gains were tripped up Monday morning by questions about revenue recognition practices at

Computer Associates

(CA) - Get Report

a weaker-than-expected report on leading economic indicators, and Vice President Cheney's weekend warning about terrorist attacks.

Of late, major averages were trading above their worst levels of the session, although still solidly in the red. As of 2:20 p.m. EDT, the

Dow Jones Industrial Average

was down 1.07% to 10,242.23 vs. its intraday low of 10,220.3, the

S&P 500

was off 1.2% to 1093.46 vs. its nadir of 1091.22, and the

Nasdaq Composite

was down 2.3% to 1701.34 after having traded as low as 1697.9.

If major averages keep improving and can close well off session lows (or even up for the day), that would certainly convince more people that last week's gains were the start of something, rather than the beginning and end of a rally. Still, today's early weakness -- particularly among tech names such as

PeopleSoft

(PSFT)

and

Microsoft

(MSFT) - Get Report

-- reinvigorated those who are skeptical that last week's returns will prove sustainable.

Picking up where we left off Wednesday, I received a torrent of email in response to the piece featuring

Trader X, a new source who expressed unrepentant bullishness for tech stocks.

"With all due respect, I believe that his call that the Nasdaq has reached THE bottom is wrong," emailed Salil Mehta, president of Mehta Fund, a small (under $10 million) New York-based hedge fund. "No one will look back and feel foolish. Pullbacks must not be bought, and tech is not the place to be."

The Comp will "cross below 1600 in the not-so-distant future" and "at some point will never cross above the 1650 level for some years," the hedge fund manager forecast, citing the familiar critiques about tech stock valuations and pointing out that last week's rally was technically driven vs. based on improving fundamentals.

Mehta, whose flagship fund was up 14.3% year to date through April, according to Hedgefund.net, is over 85% short, and he made those comments in an email late last week.

Today he added that last week's swing hadn't changed his view, which is based on statistical modeling designed to time the market. "I feel that there is simply a greater probability that the Nasdaq will fall to 1550 than rise to 1950 within the next six months," Mehta wrote. "My models and thinking could of course be off,

but I see that the Nasdaq is already crumbling as I thought it would."

No doubt many readers who expressed similar skepticism about tech's rally last week are feeling similarly.

Predictably, "I love all of the negative sentiment," Trader X said via email this morning. "Everything that I use tells me that tech is the place to be. Trader X was quoted as saying all dips must be bought, and that is exactly what Trader X is doing." (Uh boy, I've created a monster who refers to himself in the third person.)

Speaking of sentiment, the one-day Arms Index was recently up 19.9% to 0.94 while the VIX was up 5.5% to 21.39. The CBOE's Nasdaq Volatility Index was up 1.1% to 43.40.

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

Aaron L. Task.