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Why the Nasdaq 100 Could Collapse By December

By Jeff Clark
Thursday, November 8, 2007

Who will save us now?
 
In the 1950s, there was an old television show called "The Cisco Kid."
 
Cisco was a heroic Mexican caballero who teamed up with his sidekick, Pancho, and rode around doing good deeds. At the end of each show, Cisco would look over at Pancho and say something silly about the day's events. Pancho would then laugh and cry out, "Oooooh, Seeesco."
 
And then they'd both ride off into the sunset, laughing all the way.
 
A similar scene played out after the market closed yesterday afternoon. Cisco – this time the tech company, not the caballero – said something silly about not raising earnings guidance for next quarter.
 
Investors cried out, "Oh no, Cisco!" and then dumped as much stock as they could before the sun went down.
 
No one was laughing.
 
Cisco's disappointment is noteworthy because it is one of a small handful of large-cap Nasdaq stocks whose performance has been masking the weakness of the broad stock market. Indeed, if it weren't for the strength of stocks like Cisco, Google, Research in Motion (the maker of BlackBerrys), Apple, and Microsoft, the Nasdaq 100 would be sharply lower, and the ugly market internals would be much more obvious.
 
We've noted for some time now that the weakness in key sectors was a bad omen for the market. We also indicated that not much good could come from the falling advance/decline line and the ever-expanding list of stocks making new 52-week lows.
 
And now, there's this reaction from Cisco.
 
Cisco shares are going to open sharply lower today. And they're going to drag the rest of the tech sector and the rest of the market down with them. The large-cap tech sector was the last to fall, and there's a long way to go to play catch-up. Worse yet, the stock market is now without a leader.
 
So the obvious question is, "Who's next?" What sector is ready to take over the reins and ride the bull market to new all-time highs?
 
Looking at the charts, there really isn't an easy answer. Most sectors have endured so much technical damage that it's going to take several weeks to shake out the charts.
 
Maybe it's time to start thinking about riding a bear. I know that's a tough thought to consider. But it's far more practical than waiting for Pancho to show up and save the day.
 
Best regards and good trading,
 
Jeff Clark




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52-Wk
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52-Wk
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Canada 30.44 +1.3% +13.8%
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India 37.73 +1.9% +20.0%
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China 45.06 +1.4% +0.1%
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Symbol Price
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52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%