Grizzly's Growlings Current Report

Monday Morning Market Musings    07/31/2000

The NASDAQ Composite Index plunged 431 points last week, capped (so far) by Friday's 179 point, 4.7%, mini-crash. The week's 10.5% loss was the NASDAQ's third worst in its 28-year history.

The bluer chips help up somewhat better; with the Dow Jones Industrial Average shedding 2.8 % and the S&P 500 losing 4.1 % for the week.

Last week's sharp drop has lead to a short-term oversold condition, so we can soon expect several days of rebound and consolidation as the markets catch their breath and work off that excess to the down side. Then, looooook ouuuuutttt beeeellllllllloooooowwwwww!

Last month we summed up the markets' condition as follows:

The Elliott Wave patterns are a mess at this juncture, indicating that the wave 2 bounce may have a bit more to go on the upside to clarify and complete the relief rally from the spring lows. A solid break of 9700 in the DJIA and 3000 in the NASDAQ Comp should provide confirmation that the next leg of the Great Bear Market is underway.

The Wave 2 rallies peaked in mid July and it appears that the first leg in Wave 3 to the downside is underway. This devastating move may take several months to fully play its hand and will likely include an historic one-day crash. The exact timing of THE crash won't be evident very far in advance, but the market risk will remain extraordinarily high as we head into the fall. We'll keep you posted as things develop but for now we continue with our ongoing warning:

US STOCKS REMAIN ON FULL CRASH ALERT!

The news last week from Asia was equally dismal, lead by South Korea's 11.5% "correction" and the Japan Nikkei 225's drop of 5.75%.

As this report goes to press early Monday morning, the sell-off is continuing in Asia. The Hang Seng index in Hong Kong is down over 425 points, nearly 2.5%. The Nikkei 225 is down another 277 points to its lowest level since March 1999. In fact, there's not a single advancing index in Asia on Monday morning. Check Yahoo's International Markets page for the latest quotes and charts.

Since the March all-time highs in the US markets, the sell-offs have lacked the capitulation and panic that typically mark market bottoms.

As we said last month link here,

… we've hardly felt [the spring sell-off], which is one reason why we're confident that there's much more to come on the downside. There's been no blood in the streets as each index rotated to its lows. There's been no capitulation from either Wall Street or Main Street. Nothing more than the first brushstroke of panic at the very lows.

Market sentiment indicators tells us that investors and speculators are still excessively bullish (a contrary indicator). They are convinced that the worst is over and that "buy the dips" is still a prudent investment strategy. America has taken the first leg of the new Great Bear Market in full stride, barely taking note.

There's been nothing in the last month to change this assessment, though some signs of panic are creeping into market psychology.

In bear markets, the lion's share of surprises are to the downside. A prime example is Friday's "Disaster du Jour," American Power Conversion [APCC]. The stock was cut nearly in half, down 20 11/16 to 25 13/16. The company's crime? - announcing that profits for the year would "fall short" expectations.

So just how bad will the year 2000 be for APCC? They think they'll earn $1.13 to $1.25 per share. Just how much lower is that than Wall Street anal-ysts' expert expectations? Only $.05 - $.17 per share. (The Street was looking for $1.30 per share.)

If such a relatively minor revision to a company's earnings forecast can cut its stock price nearly in half, imagine how deep and sharp the crash will be in stocks that really disappoint The Street as the Great Bear Market unfolds in the months ahead.

grizzly@bearmarketcentral.com

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