The Chart du Jour

The Patient that Died

May 10, 2001

By, Barclay T. Leib

Chart produced using Advanced GET End-of-Day

If you know anyone out there espousing the words "normal correction in an ongoing bull market," just show them the chart above. Is there any denying that we just experienced a bubble of the most magnificent magnitude, and that it has now popped?

Using alternative imagery, the patient has had a heart attack, and is now dead.

Investors have seen no less than $4.7 trillion evaporate from their portfolios -- an amount InvestTech Research points out is 1.5 times greater than the value of all stocks in January 1991!

And yet the Wall Street Journal recently ran a story entitled "The Recession that Wasn't." 15 of the 17 greatest gains in Nasdaq history came this past April, and analysts on CNBC talk about a normal "inventory correction." It's almost as if there is a conspiracy to continue propigating a false myth.

As Fred Hickey of The High Tech Strategist so ably points out, there is nothing normal about Cisco's current inventory problems. Cisco's inventories currently stand at four-and-a-half times where they were last year, and as Cisco writes-off and works down this massive overcapacity, guess what? Other companies supplying to Cisco further down the food-chain are going to have virtually no new orders for the rest of the year. Component suppliers and semiconductor manufacturers alike have basically lost their biggest customer. The patient has died, but no one dare hold the wake for fear of advertising this disturbing fact.

On Cisco itself, and drawing a few pivot lines using some old highs and lows that suddenly seem to matter again, we'd guess at the forthcoming 6-month range for Cisco of $11 to $22. Trading at just above $19 at present, Cisco is anything but a bargain. Instead it may slowly be melting the hopes, dreams, and savings accounts of many neophyte American households.

How about we roll some early 2000 videotape from CNBC and see if there isn't any fodder there for a fun class action lawsuit? Those bimbos certainly deserve it for the added hype they wrought.

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