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Comments will be short and sweet tonight

(January 30, 2002)

Today's action doesn't change our bearish stance at all. In fact, we believe Monday's action was more telling as both the Dow and the Nasdaq plunged below key support levels. All the key stocks broke down on Monday, led by GE, MSFT, IBM, MER, and AOL. The fact that both TYC and WMB plunged on accounting concerns did not help either.

The put/call ratio was very high today. Until the final half-hour, the amount of equity put options was being transacted at a greater pace than equity call options. This is something we have rarely seen before-we don't recall such a thing in recent months, not even in trading immediately after the WTC attack. Therefore, the action in the markets during the latter half of the day weren't at all surprising. Make no mistake, however, as we think it is just a bounce.

Going forward, we believe Enron (it is only the top of the iceberg) and accounting concerns in general will be an issue for the stock market-an issue strong enough to take the Dow significantly under its September lows. Investors are getting more disenchanted by the minute. After all, not even a low P/E ratio will matter if the earnings are "fake," right? What is revealed during the upcoming Enron investigation will also be key, in our opinion. Is something more sinister lurking beneath the surface? Chances are yes, and chances are that this problem is more widespread than you think.

For now, we will not be surprised if the Dow bounces in the next week or next couple of weeks. After all, the bears have gotten quite overconfident in recent days. What will be surprising, however, is if the market manages to hold out for the rest of February. We believe that by the time March or April arrives, the market will be testing and breaking its September lows.

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