Sand Spring Advisors LLC

All Hail Fred Hickey

July 20, 2002

by, Barclay T. Leib

While at Sandspring.com we were clearly premature in late June looking for a market bottom, one analyst, Fred Hickey, writer of the Nashua, N.H.-based High Tech Strategist remained uniformly bearish. In the late June edition of his newsletter, Hickey basically asked the question "Are we there yet?", and concluded that the mid-July earnings season would invariably be a disaster, and thus the answer to this question was a most definite "no." He deserves much praise. Sometimes staying strongly bearish is the hardest thing to do after the market has already suffered a substantive decline. We have no affiliation with Hickey, but the annual $135 cost of his newsletter is certainly one of these best bargains that we know of.

Meanwhile, here at Sandspring.com, we have had our moments of foresight, but the last two weeks have not been one of them. In addition to having forecast in advance a target high on Johnson & Johnson toward 63.90 back on March 1st (that ended up being very close to subsequent reality), we argued back on March 8th, and again on April 21st, that we were missing a major low in the Dow Jones Transports. That downside target has yet to be seen, but we are fast approaching our second level of anticipated support near 2309 on the way towards it. Meanwhile in March as well, we published for subscribers a chart pointing toward a Dow Jones target of 7,700, and have now left our original lines in place in the update below. Unfortunately, when we had not reached this target by late June, and the Nasdaq 100 had reached our espoused 930-970 target range, we gave up on reaching our Dow 7,700 on the current decline. Clearly, we were wrong in this re-assessment.


Chart constructed Using Advanced GET End-of-Day

From here, we have to admit that 7,700 will likely be seen sooner rather than later, albeit a bounce period should occur shortly thereafter.

In terms of the S&P 500 this may mean a spike low toward 793-805,(a Fib support region shown on our May 22nd article "A Possible Path" but that we did not anticipate reaching so soon) followed by a bounce toward 975 (by November 7, 2002?). Prices in the red-hatched area depicted below would clearly be oversold, whereas a bounce back to a 970-980 Head and Shoulders neckline region (blue-hatched) would now be a selling opportunity. The chances of a more substantive rally back toward 1245 on the S&P appear to have simply evaporated.


Chart constructed Using Advanced GET End-of-Day

Fundamentally, this past week brought new emerging problems within the sub-prime credit card sector that prompt us to think: If the consumer continues generally unwilling to cut back on spending and borrowing, maybe it will now be up to the regulators and banks to do this for them. In addition, we saw housing stocks finally start to fall from grace, and a renewed e-coli breakout within the U.S. beef supply.

None of these latter developments are of particular surprise to us at Sandspring.com, and those critical of our long biotech call at the beginning of this month should note that we continued to espouse bearish positions in stocks such as Capital One, Americredit, Toll Brothers, Pulthe Homes, and Jack-in-the-Box as recently as our July 16th update.

In short, we have certainly been surprised by the magnitude of decline by the S&P 500 and Dow over the last two weeks, but not by the individual sectors and stocks within the market that have come under pressure.

Lastly, we also continue to feel that if one sector should lead to the upside when a short-term market bottom does take form, it will be the biotech sector. We thus maintain our long positions and recommendations there.

Non-subscribers are invited to sign up for our premium level of service below, and gain immediate access to this commentary entitled "Biotech Bottom," plus access to earlier Sandspring.com analysis as detailed below.


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Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.


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    • Pension Asset & Liability Blues...March 2002...
      Within this article we explore much misunderstood and underestimated ERISA and FAS accounting that could cause a two-decade long malaise in corporate profitability. We also update many of our previously espoused long and short views.

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      A temporarily bullish look at the DJIA, written in late February 2002, together with a discussion of several value stocks that we like within this market.

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    • 2002: A Golden Year? ...December 2001...
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    • The Cycle of War & The Agony of Debt...October 2001...
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    • Long_Term Equity, Gold, and K-Wave Cycle Thoughts, August 2001...
      A long-term look at our own cycle theories and how they may potentially interact with the famous Kondratieff cycle
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    • The Importance of June 2nd, May, 2001...
      A cyclical look at the 8.6 month cycle at work in the current equity market, and one financial stock with a nasty looking "pattern match" to a historical chart pattern
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    • Expert Short Picks, May, 2001...
      A discussion of the fundamental thoughts of short selling hedge fund manager James Chanos within a technical framework
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    • Four Themes for 2001 & Beyond, April, 2001...
      A variety of issues we see growing in importance over the year 2001, with a particular emphasis on certain issues within the U.S. food chain.
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    • Measuring Financial Time: The Magic of Pi, February 28, 2001...
      Two centuries of financial history within a cyclical and mathematical framework, including an analog roadmap for the NASDAQ to potentially follow in 2001.
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    • Portfolio from Hell, January 20, 2001...
      a close critique of a major mutual fund manager and a technical look at the individual equity components of their go-go portfolio.
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    • Positive for Now, January 4, 2001...
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    • Time to Start Accumulating the Golds? - Dec. 2000...
      We take a close look at four gold-related stocks that we favor.
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    • Don't Look for a Bottom Until..., Nov. 2000...
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    • Diamonds in the Sky, Oct. 2000...
      A close technical look at the Dow Jones Industrial Average and the implications of the formation it has made.
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    • The Signficance of Oct 27- Nov 1, Oct. 2000...
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  • Subscribe to Sandspring.com on a quarterly basis and receive all of the the above articles, and all that follow them (a minimum of 3 more per quarter), plus all Chart du Jours (some of which would otherwise be pay-per-view) for just $65. THIS INCLUDES OUR June 3rd. UPDATE -- "The Coincidence of Time" -- as well as our FULL ARTICLE of July 8th entitled "Biotech Bottom" and July 16th update to it. Within this first update, we touch on three separate approaches to the market that all pointed toward a violent June 2002 market low. In the latter article, we discuss the potential for a large tech and Biotech market bounce into early November 2002, and potential plays within the Biotech sector that may benefit from such a rally.

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