Monday, November 04, 2002

WEEK 5 - A KEY WEEK - 3 MAJOR MARKET CATALYSTS


It's been 4 weeks now since the October 10 re-test of the low. Most major indicies (Dow, S&P, Russels, etc.) are up in the 10-13% range. The NASDAQ composite is up 16% - and various beaten down sub-indices in the tech sector (Philly semiconductor index, for example) have gained over 30%. Looking GOOD.

This could be a key week to see if this rally has legs or not - three events could potentially have huge impacts on the market this week and should determine where we go from here.

1) The Microsoft settlement - The judge signed off on the Bush Administration sell-out, I mean, settlement on Friday. This removes a huge legal cloud of the giant software maker - and remember the market HATES uncertainty. Microsoft is huge - at one time not too long ago it had by far and away the largest market capitalization of any company in the world (martket cap = number of shares outstanding X price per share). Microsoft is a key component of the Dow, the S&P, *and* the NASDAQ - and it is no coincidence that the high-water marks of the markets back in 2000 coincided with the initial order to breakup Microsoft (As an aside, speaking here as an antitrust professional (bet you didn't know that), IMO, Microsoft was guilty, guilty, guilty - and it was only the fact that Bush came into office is saving them from being broken up - which IS the appropriate remedy for Microsoft's illegal activities - but that's all water under the bridge now). Anyway, now that the threat of breakup is completely gone, look for MSFT, as well as the general market, to get a huge boost off of this news.

2) The election - Repeat after me - "The market HATES uncertainty". I don't believe that the market is overly partisan, but the fact that "regime change" in Washington is possible in the ballot booth creates uncertainty. Look for a market boost, regardless, once the election is over.

3) The rate cut - with the not-so-great economic numbers of the past month, specualation in the past week has centered on a rate cut at the Fed FOMC meeting on Wednesday afternoon. The Fed has 1.75 basis points left to get to zero - and I would doubt that that they would use up 50 of that all at once, so I don't expect to see a cut of more than .25% on Wednesday (I predict that, just as they lowered the rate right after 9/11, that the Fed will also lower the rate again when we attack Iraq). A rate cut does a lot to help the financial sector and any sectors such as housing which are dependent upon the credit markets. Additionally, it lowers the cost of corporate debt and makes companies more profitable by reducing debt costs. A rate cut almost always produces a nice boost - so hopefully this week we'll see one. On the down side, the market can be quite a baby - once expectations set in, no matter how realistic or unrealistic, if those expectations aren't met the markets gets real upset and sulky. If there ISN'T a rate cut on Wednesday, look for a terrible day.

So, is a positive "perfect storm" in the offing this week? Quite possibly we might hit the Trifecta. Look for other possible market boosts such as the resignation/canning of SEC Chairman Pitt.

On a technical basis, what we want to see is the Dow hit, and pass the August high of around the 9000 mark - this will absolutely confirm the "Double-Bottom" pattern started this summer, and would be a huge psychological boost. Right now (Monday morning), the pre-opening Dow is already up 100 and is over the 8600 mark. With the big news this week, reaching that all-important 9000 level this week shouldn't be out of the question. The big question is, if the Dow does hit or pass 9000 this week, if it will be able to close on Friday over that level. If it does,. that will be HUGE.