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Sounds of Silence

SAN FRANCISCO -- The headlines tomorrow will scream "Monday, Bloody Monday" or some such hyperbole. But the majority of market players were notably subdued amid and after

Monday's market downturn.

The selloff was a "normal function of the intense volatility" traders have come to know and love, according to one Wall Street strategist, reflecting the views of the many (which outweigh the views of the few).

Having previously underestimated the market's recuperative powers (and admitted as much), I'm not going to be so bold as to suggest today's downturn augurs more. More important than me learning a lesson, market players report continued interest in their chief product offerings, which is the buying and selling of stocks vs. the telling of bad jokes (despite perceptions to the contrary).

"The averages all had major moves -- that's why you're seeing these pullbacks in big stocks

such as the


(CSCO) - Get Cisco Systems Inc. Report

of the world," said Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland, Ore. "But people still have buying power. They don't want to be out of the market. With no event on the horizon to change market psychology, people will continue to overweight stocks."

Federal Reserve


Alan Greenspan's

two (scheduled) public appearances this week and Thursday's

employment cost index

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are events some suggest could change the market's mindset. But Volk disagrees.

"People don't seem to be too concerned" about anything, he said. "They're looking past $30 oil, rising rates and are looking at earnings, which are coming in much better than expected in a lot of cases."

Indeed, 64% of companies that reported earnings through last week were above expectations vs. the five-year average of 56%, according to

First Call/Thomson Financial


If the earnings continue to impress and the 30-year Treasury bond continues to act as if the Fed's next tightening will be its last for the foreseeable future, today's decline will indeed be relegated to the dung heap of market downturns. (Although just about every other media outlet suggested "interest-rate worries" as a culprit in today's decline, the 30-year rallied 21/32, its yield declining to 6.65%, suggesting such concerns weren't paramount.)

But, in the grand tradition of Wall Street, not everyone is so sanguine.

"The high volatility we have and are seeing suggests a near-term top," Courtney Smith, president and chief investment officer of a firm bearing his name, wrote in an email. "I look for all the indexes to suffer a modest correction including the

Nasdaq Composite

. It's too early to call for a resumption of the bull market. We need to see a little more time to the downside first."

Smith, who pens the newsletter

Wall Street Winners

(and also writes a weekly column for a competing Web site which shall remain anonymous), said in a follow-up call that today was significant because the tech sector finally played catch-up with the already retreating blue-chips.

Despite near-term concerns, Smith remains optimistic about tech stocks long-term, suggesting there are "compelling fundamentals" which provide "rational reasons for them to be the place where everybody is going to put their money."

But that doesn't mean investors should rush back into the Ciscos of the world after the recent hiccup. "This is a great company but I don't think it's worth a 100 forward P/E," Smith wrote in the most recent edition of his newsletter, published Jan. 19. (After today's decline, Cisco is now trading at "only" 85.9 times its projected 2001 earnings.)

Instead of the tech behemoths, the market watcher suggests investors search for opportunities in the "niches" of technology. In the Jan. 19 newsletter, he added several new recommendations, including:

Advanced Energy Industries

(AEIS) - Get Advanced Energy Industries Inc. Report


Electro Scientific Industries

(ESIO) - Get Electro Scientific Industries, Inc. Report


Helix Technology



Novellus Systems




(ORBK) - Get Orbotech Ltd. Report


PRI Automation






"I think that you will see that they will hold up better than the averages and will lead the market higher when the market turns back to a bull market," he wrote.

For do-it-yourselfers, Smith's criteria for finding "winning" stocks include the following:

  • Strong "owner" earnings, defined as discounted future cash flow minus capital spending plus increases in working capital;
  • A price-to-earnings ratio at the low end of its historic range or below the market multiple (which, by the way, is currently 25.1 times based on year 2000 estimates for the S&P 500);
  • Return on equity greater than 15%;
  • Insider buying and/or corporate buybacks, and;
  • Stock price performance that reflects a bull market in the stock. (i.e. He's not looking to go "bottom fishing.")

Happy hunting.

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 welcomes your feedback at .