GuruVision: Gurus Play 'I Spy' with Fed

SAN FRANCISCO -- Judging by the major averages, today was a good start if Douglas Cliggott, market strategist at

J.P. Morgan

, was right when he declared this morning that "a sign that we have really and truly made a bottom will be a period of very low volatility, even boredom."

The

Dow Jones Industrial Average

rose 54.06, or 0.5% today, while the

S&P 500

gained 9.16, or 0.8%, and the

Nasdaq Composite

added 25.36, or 1.5%.

But you shouldn't judge a book by its cover and looks can be deceiving -- among other cliches.

First, Cliggott, who compared the stock market with an airplane, remains convinced we're far from any landing strip resembling a bottom. The "extraordinary turbulence" evident last week is "not a good sign" for those "rooting for a quick return of the bull market," he wrote.

Second, the session was far from boring despite the relatively modest moves by major averages. In addition to gratitude for the holiday-shortened week -- Wall Street will be shuttered in observance of Good Friday -- top topics of conversation today included prospects for an intermeeting rate cut by the

Federal Reserve

, and semiconductors, which got pounded following negative comments from Dan Niles of

Lehman Brothers

but then mounted a recovery. The

Philadelphia Stock Exchange Semiconductor Index

fell 2.5% to 475.22 after trading as low as 455.55.

As for the Fed, so great is the anticipation of an intermeeting rate

cut that even some seasoned market watchers were parsing the meaning of a

closed-door meeting among Fed governors today. That such meetings are regularly scheduled events did not deter the speculation.

"The weak employment report

Friday strongly boosts the chances of an intermeeting rate cut," Bruce Steinberg, chief economist at

Merrill Lynch

, proclaimed today. "We believe that a 50 basis-point cut in the fed funds rate could come at any time

and hope the Fed eases within the week."

Steinberg, who could not be reached for additional comment, believes the economy is "as close to recession as it can be without actually being in one" and expects fed funds to be at 4% by midyear.

Elsewhere, the suddenly ubiquitous Don Hays, of

Hays Advisory Group

in Nashville, Tenn., declared "the Fed will conduct an intermeeting rate cut very soon" if the spread between the yield on the 3-month Treasury bill and fed funds continues to widen. At today's closing yield of 3.94%, the 3-month is 106 basis points below the current fed funds target of 5%.

Also, Hays reiterated a forecast (first reported here on

March 20 and almost everywhere else since) that an "important bottom" will emerge within a "20-day trading window" subsequent to March 16. The lows of March 22 will prove to be the "final low" for the broader market, he forecast, notwithstanding expectations for more "wicked volatility" for another week or so.

Conversely, Kurt Engelke, capital market strategist at

Anderson & Strudwick

in Richmond, Va., gives only "the slightest chance" for an intermeeting ease because "the

Federal Open Market Committee

does not want to appear as though it is pandering" to the stock market.

However, if the Fed cuts prior to May 15, "equities will get crushed and the bond market

will scream," because it will redouble concerns about the economy's state (i.e., recession), Engelke predicted.

It's likely not much fun being

Alan Greenspan

these days, what with having to live in a box that he designed, but built too small.

Bold, Bodacious or Boneheaded?

Stocks getting "crushed" on an intermeeting rate cut is certainly a controversial forecast, as most optimists are clamoring for such action. Indeed, prospects for an intermeeting cut was the caveat in a call Scott Bleier, chief strategist at

Prime Charter

, made to the firm's brokers this morning and repeated to me this afternoon.

The focus of the call was Bleier's prediction that the "next and final leg" of the downturn is forthcoming and will take the Nasdaq down into the 1300 area, or about 25% below today's close. Other major averages will likely retest, but hold, their recent lows, he said.

"There's still lots of hope and people are going to get constructive

TheStreet Recommends

about today" because the Nasdaq fared well and the SOX avoided carnage, Bleier noted. But the Comp has "passed the point of no return and has to get dirt cheap" relative to historic valuations.

The call is based on a combination of technical analysis, Bleier's proprietary trading model, and admittedly "subjective" factors, including his "gut."

Regarding the aforementioned Fed caveat, Bleier believes stocks will "spike" on an intermeeting rate cut and recommends investors "use that spike to protect yourself" by writing covered calls or buying puts.

The strategist is particularly wary of "mega-cap" tech names such as

Intel

(INTC) - Get Intel Corporation (INTC) Report

and

EMC

(EMC)

, which he believes will each break $20;

Microsoft

(MSFT) - Get Microsoft Corporation (MSFT) Report

, which he predicts will trade under $40; and

Cisco Systems

(CSCO) - Get Cisco Systems, Inc. Report

,

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

, and

Oracle

(ORCL) - Get Oracle Corporation Report

, which he forecast will all trade under $10.

Bleier believes investors can "hide" in names such as

General Motors

(GM) - Get General Motors Company (GM) Report

,

Verizon

(VZ) - Get Verizon Communications Inc. Report

, and

WorldCom

(WCOM)

, and continues to view

Scientific Atlanta

(SFA)

and

Symbol Technologies

(SBL)

as "core positions." While both have fallen more than 19% since Bleier recommended them on

Feb. 8, he noted they have outperformed the Nasdaq, which is down nearly 32% since.

Prime Charter has done no underwriting for the aforementioned.

Undoubtedly, many of you are steaming, recalling Bleier's ill-fated

concrete floor call in early December or bottom-picking efforts last fall. For whatever it's worth, he did

acquiesce to the wrongness of those calls in February (unlike some better-known strategists) and has been mainly preaching defense since.

Finally, Bleier's "fondest hope" is that this "final leg" call proves wrong and said that even if it's correct, the "good news" is that the "cascading waterfall" of losses is finally coming to an end.

With "good news" like that, who needs

Rosie?

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.