Sand Spring Advisors LLC

All Hail Fred Hickey

July 20, 2002

by, Barclay T. Leib

While at 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, 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, 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 analysis as detailed below.

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