Today's stock market action almost certainly marks the top of an
intermediate rally in what is now almost certainly shaping up as an
entrenched bear market, led by high tech stocks traded on NASDAQ.

The NASDAQ September futures made a second consecutive downside reversal
just under the 25 and 40 day moving averages. Other bearish indicators are
the important fact that there is now in force a monthly Lindahl sell signal
as of the end of July. A powerful weekly Lindahl sell signal would be
completed upon a close in futures at 3632, as compared with the current
price at the time of writing of 3675.

Today's market action was notable for the failure of Cisco stock to follow
through despite excellent results published after the close on Tuesday.
Although the company expects significant profit growth over the next 12 to
18 months, investors have clearly been more impressed by the disclosure that
profit margins are shrinking. After the close today, Applied Materials, a
major semiconductor maker, reported wonderful results. However, this did
nothing for futures in the overnight market.

Looking through all the charts for the ND 100, we see just 6 that have
charts that invite new money, while there are 53 that suggest stocks that
should either be sold or, in many cases, sold short. The balance are
indeterminate, but certainly not worth the risk of owning, let alone buying
with new money.

In current market conditions, when valuations are high and the technicals
are ambiguous, there is a very high risk of unpleasant surprises, and a very
low probability of favorable ones. We have seen, for example the shocker
that came from the venerable Proctor & Gamble. Today cam a similar one from
Eli Lilly, maker of Prozac, after a ruling against the company on its
patents. There was no technical reason to expect this stock to fall by
almost a third in a single day.

We continue to recommend not just holding but also buying stocks in
companies producing oil and natural gas, and the corresponding oil service
stocks. We think the price of Natural Gas can advance by a further 50
percent from here unless the winter is very mild. We think Crude oil has a
chance of going to $40 per barrel from about $30 now and that Heating Oil
could go at least to $1 and possibly $1.20.

It is our view that there is a major crunch coming in the supply and demand
fundamentals for energy, and that both consumers and investors have been
extremely complacent about supply and price. That is why energy stocks are
still extremely under-owned by the institutions.

As we have been saying, we think that Suncor, for example, could earn its
current stock price within the next 5 or 10 years. There are few people
extrapolating anything near as good as that for Cisco, and look at its
current multiple!

We are adding recommendations for stocks to sell short:

MCI Worldcom (WCOM) $34.94
Telcom Semiconductor(TLCM) $19.69
Nextel Communications (NXTL) $54.25

Note that it is generally best to sell a basket of stocks short rather than
relying only on one or two. If you have not previously sold stocks short, do
so very lightly. We don't think there is much real danger in any of our
recommended shorts but you never can tell. Each of our recommended short
sales has in our view the potential to decline by a further 50 percent. Do
not even think of trying to sell short a strong stock like Nortel. Remember
the rule: Buy the strong, sell the weak!

Stockscom