Sand Spring Advisors LLC
Cisco Rally Implications
May 9, 2002
by, Barclay T. Leib
If yesterday's viscious tech rally was led by any company other than Cisco, we might be more prone to believe in it. As it stands, Cisco somehow posted a sharp increase in profits with no underlying revenue growth, deferred revenue that showed no growth for the first time ever, and a profit coparison to a period last year when the company made a huge inventory write-off.
Anyone who knows anything also knows that Cisco CEO John Chambers has a prediliction of trying to create self-fulfilling prophecies, but with many of his past prognostications just never ending up holding water. We think he has the credibility of a sieve.
All of that said, certain tech stocks (AOL Time Warner in particular to our Fibonacci eye) were deeply oversold. And Cisco has given the market an excuse to make a "student body left" type of move - for a day or two.
Can it continue? All we know is that the market has recently had a strong tendency to leave a cycle high on average every 7.9-9.3 months (actually averaging the PEI 8.6 month rhythm), with each subsequent high falling below the one that preceeded it -- yielding a possible "cascade" type pattern in the works. This is shown by the arrows on the chart of the Dow Jones Industrials below. Early November is our next period to expect a high.
This recognized, many indices and stocks including Dell, and Echostar (the latter pictured below) are still missing 5th wave lows, and don't exactly offer the appearance of being technically strong at present. Despite Wednesday's rally, our more favored view continues to be for the market to trade poorly into late May/early June before a more significant upswing attempt into November -- but first starting from a lower level. 5th wave objectives to the downside will then likely linger for eventual fulfillment into 2003 and beyond.
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