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Subject:  gc brief Date:  11/20/2002  11:57 AM
Author:  warbac Number:  27371 of 44633

General Commentary
Nasdaq extended its modest retreat off the recovery high in Tuesday's action amid some more light profit-taking. Selling was broad based with most industries posting losses. However, selling was orderly and well contained suggesting that there's still a little upside left in the rally.

How much additional upside is a good question. Technically, a closing break of the 1423 ceiling would position index for a run at the 1480-1500. At best that's 9.2% above current levels and 5.4% above the break out point. Nice gain, but nothing tremendous - especially given the risks.

What are the risks? Well, after Q3 earnings came in better than feared many investors started to (re)gain some optimism regarding the strength and timing of a full earnings recovery. However, maintains that investor optimism is unfounded, as one company after another is warning that IT budgets will remain restricted in the upcoming year. EMC was the most recent example of a big tech firm cautioning against a resurgence in IT spending. The stock dropped nearly 10% yesterday alone.

Soft economic data in recent weeks would also seem to argue against a major upturn in corporate profits/IT spending. Should the street be disappointed by the pace and timing of an earnings recovery - yet again - sector likely to go back on defensive.

And as we've seen over the past few years, stocks fall a lot faster than they climb. Consequently, it's understandable why buyers aren't lining up to gobble up tech shares when the upside is a relatively modest 5%-9%. Until earnings visibility improves, it's difficult to make a compelling case for buying tech (in general) at current levels. is not arguing that the sector/market won't go higher from here, just that the risk/reward ratio doesn't favor going long at this point.

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