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May 30, 2000

Too Little Trading Volume Deepens Nasdaq's Misery
(excerpted) By E.S. Browning, Randall Smith and Ruth Simon, The Wall Street Journal

Buy my stock, please!...Weiss comments

NEW YORK -- The stock market is starting to remind traders of an old joke, often attributed to Groucho Marx.

Two women are lunching in a restaurant. "This food is awful," says one. "Yes," agrees the other, "and there isn't enough of it."

That's precisely the complaint of investors trying to sell onetime highflying technology stocks these days, and they don't think it is very funny. Not only is the Nasdaq Stock Market now 36.5% off its record set in March, but trading volume is also down. That means that many people are suffering when it comes time to sell a stock, and they can't even sell as much as they want to.

With not enough buying demand for all the unwanted technology stocks that people are trying to sell, the sellers sometimes simply give up. Professional traders talk about an "overhang" of unsold stock that sits on the market, preventing stocks from rallying in any lasting way.

Whenever buyers appear for beaten-down tech names, such as Commerce One or Qualcomm, they find themselves overwhelmed by sellers who emerge, hoping finally to get rid of unwanted stock.

In some cases, "either it takes longer to get the job done or at some level you pull away and just defer doing anything further," says James Weiss, chief investment officer for stocks at State Street Research in Boston.

As it holds the market back, the relatively weak trading volume also is causing some pain for online brokerage firms and even for traditional firms, which draw their incomes from an active market. And some amateurs are thinking about giving up online trading entirely.

"Some days, you think, 'Why am I doing this,' " says Kent Smith, a dentist in Irving, Texas. "The majority of days, my portfolio goes down."

Dr. Smith says his holdings have fallen 50% in value since March 3 and recently slipped below what he paid for them. He used to make a trade or two a day. But he figures he has bought only two stocks this month, although he has sold some stocks short -- borrowing them and selling them in a bet they will fall in price.

While today's stock-trading volumes are still huge compared with historical levels, the recent pullback in activity has been marked. From March to May, the average daily volume on Nasdaq fell by almost one-third, to about 1.3 billion shares from more than 1.9 billion. From the heaviest day in March to the lightest day in May, the drop was close to 50%. New York Stock Exchange volume is down more than 17% since March.

The weaker volume helps to explain the whiplash of volatility that often pushes the market up and down, as stocks suddenly swing up when demand appears, and then suddenly slump when it gets used up.

Clearly, the bear market is in full-swing. Lower trading volume and unsustained rallies are obvious indicators that the bull market is dead. And weak volume is not isolated to the Nasdaq - volume is down across the board.

Nasdaq-mania has come to a close. Dot-coms and tech stocks have lost their luster with investors. The Nasdaq has been able to muster few rallies - only one positive close in the last seven days. Investors struggle to unload or just give up altogether on trying to sell their overvalued tech stocks.

Though the Nasdaq is up at midday, weak trading volume is sure to make any rallies short lived. The market can't sustain a rally when fewer and fewer investors are willing to chance that trendy tech stocks will revive.

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