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Hello out there stock charting fans. As mentioned in my midweek up date this past week, the usual things
that support falling markets such as falling interest rates are seemingly ineffective this time around.
This market seems to have a liquidity problem. Where are all the "buy the dips" people that usually rush in to
scoop up the bargains. Don’t they see a bargain in Coke KO, like they did so many times before. After all, it’s
only trading at a P/E of 49 and growing at 1% per year.
My guess is, most of the "buy the dips" type people have bought the dip here, and along with the institutions,
they are spent. Many of you may remember me telling you back in May, that the last time I saw a combination
of a narrow market, combined with low institutional cash was in 1993. I also mentioned that in took about 5
short months before we were in a bear market. Well here we are again.
It seems more like musical chairs here. Now everybody knows it’s a market break, so everybody is rushing for
the door or chair. Where is the money going to come from to support this market. Mutual funds have as little
as 4 % cash on hand. This certainly is not enough to support this enormous market of some 6 Trillion dollars.
This weekend I was playing Racquetball with the number 1 mutual fund manager in the country as ranked by
Morningstar. His name is Robert Rodriguez, and you may have seen him on TV. or in Baron’s in the Round
Table. He gave me a few sobering thoughts that I would like to share with you here. He told me " Just think
about this Dan, if everyone in the country called their Mutual fund and transferred just 10% of there assets
into cash or money market accounts, then the fund managers would have to sell at least enough stock cover
this de cit, as current cash is only at 4% This would leave a de cit of 6% and zero cash on hand". The need to
raise cash would cause a sizable slide in stocks. This may be one of the reasons why we are sliding so hard so
fast.
Well as you know we had two of the biggest down days that I have every seen on the NASDAQ last week. We
also had all the indexes close below the 200 day moving average line for the rst time in almost 4 years. We
are now below all former support lines or support areas. These lines or points will now become resistant
areas.
On a short term basis we are extremely oversold. A sharp snap back of 3 to 5% could come at any time. I think
it may take a little longer to come and we may be much lower by then.
As I noted in my last letter on Thursday YHOO and AMZN were just breaking their long term rising trend
lines. I could not resist. AMZN had no morning volume and in fact, volume began to pick up at about 6:40 L.A
time and the stock began to slide fast, so I shorted AMZN at $117 15/16 and YHOO at $87 7/8. I also shorted
Capital One Financial COF at $116 ½. COF rallied up 1 ½ points early in the morning, so I couldn’t resist to
short it at that price. By the end of the day, AMZN was down to $105, YHOO down to $82 and COF to $114.
In AMZN, the 200 day moving average line is at 59 and YHOO is at 55. I think that these two stocks could get
down to these levels soon. At least I hope so. Since I think we have some time to go before we reach bottom,
I have put together a list of some ne opportunities to short. May I suggest that you get to know your stock
by following it throughout the day. Learn to follow price movement with volume surges up and down. I try to
break down price movement with volume break downs on an hourly basis. In this way you will began to get
to know you stock. I nd all stocks have a personality so to speak. I think this will help you a great deal in the
future. Now on to the picks.
WEEKLY STOCK PICKS
Colt Telecom Group PLC ADR (COLTY) - $165

This stock is in the stratosphere and coming down hard. The stocks has just closed below the 50 day moving average line. All
heavy volume days are on the downside. The stock is set to break a horizontal line at $165. Short here to $158.
Celestial Seasonings (CTEA) - $37

Stock is rolling over and set to break down further. See attached graph. Short when stock goes below the lower trend line.
This would be between $36 and $34.50. This company has a small oat so it could move fast.
Information Mgmt. Res. (IMRS) - $26

Stock has volume picking up to the downside and P/E is at 48. Stock is set to break a rising trend line. Short here to $23. 17
million shares outstanding.
Costo Companies (COST) - $53

Stock is setting on the 200 day moving average and the high volume is telling me it’s going through it any day. I would wait
to see if you can get a snap back to $56 or so. If it consolidates here for a few more days then I would short it here. I would
also short Wal-mart here.
Dell Computer (DELL) - $118

Almost record high volume here on the top and all the good news is out. Earnings and the stock split are all factored in. If
you can get this stock to snap back then short.
Etec Systems Inc. (ETEC) - $29

This stock is just beginning to leave it’s base of 9 weeks to the downside. Short here to $26.
Geotel Communications (GEOC) - $41

This was a very strong stock and now it’s rolling over. Short here at this price on down to $38. Stock is just now under cutting
the 50 day moving average and the 200 day is at 28.
International Network Services (INSS) - $35

This stock has just completed a double top and now has volume picking up as the stock is moving down. Stock could have a
snap back here and I would short it if it does. Short to $33.
Legato Systems Inc. (LGTO) - $39

This stock was very strong with a 99 RS and 99 EPS rating. Unfortunately the stock has a break away gap to the down side as
it shot through the 50 day moving average line at $42. P/E of 73. Short any 2 to 4 point snap back. The 200 day moving
average is at 30 and it would seem that would be this stocks next stop.
Paci Care Health System B (PHSYB) - $63

All of the healthcare stocks are breaking very hard. This stock is just now leaving a little reversal formation. I would short
here and hold for 12 to 15 points or so. Short down to $61.
Qwest Communication Int’l (QWST) - $29

Everybody is heading for the door on this big lug. P/E Of 497 and very high volume as the stock has gone through the 200
day. Short if the stock snaps back 2 to 4 points. I see all these infrastructure telecom stocks breaking very hard. Short all of
them as they are all very expensive and very high P/E of 500 plus.
Whole Foods Market (WFMI) - $43

Stock had a very hard break 6 weeks ago and the snap back is complete. Draw descending trend line up under the past 4
weeks and short the stock as it breaks the trend line. Short between 42 and 41. See attached Gif le.
I M S Health Inc. (RX) - $59

Stock has just put in a double top and is breaking hard on good volume. Revenue growth is almost nil. Short here or higher
and hold for $50 or lower. P/E is at 35.
Kohls Corp. (KSS) - $49

This company has a P/E of 49 and is growing a 25% clip. The stock is rolling over on very high volume and should break
further down. I would short here and any snap back. All of the retail stocks such as this one and Gap Stores GPS are breaking
hard. Short Gap as well.
Lincoln National Corp. (LNC) - $88

All of the insurance companies and Banks normally trade at a P/E of 10 for years. The past few years they all moved up to
"growth" stock status trading at P/E’s of 23 to 28. Now they all are coming back down to Earth. This stock has a P/E 19. Stock
is under massive distribution here. Short here and hold for a 15 to 25 point break.
I T C Deltacom Inc. (ITCD) - $35

Stock had a massive break and should roll over here at this price. I would wait a few days and /or short any further upside
price movement. If it doesn’t go back higher, maybe it will go sideways for a few more days then roll over. I would do the
same with IIXC as well.
Broadvision Inc. (BVSN) - $19

This stock has nothing but hype when it ran up. I would short here and any snap back. Stock should be a $10 stock in a
month or so.
Well that’s it for this week folks. I will have more for you during the week.
Dan
P.S. May I remind you folks to register on the WEB site. This means everyone. Next week, only those that
resister will get the letter and the updates. Thank you.

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