Analysis - Sunday, June 17, 2001 7 P.M.
On Tuesday, June 12, the Dow was down 133 points at the
print low of 10788. The Dow then reversed and closed
up 26 points for the day. We stated that evening that despite
the sharp reversal off the lows, we believed that any further
rally would be brief, and that lower prices were likely into
Thursday or Friday of last week. We also stated last week
that we thought this decline could carry the Dow down near
the 10600 area. The Dow began the week at 10977, and at that
time a decline down near or below 10600 seemed to most
investors, remote. At the lows Friday the Dow was down another
123 points, reaching a print low of 10566. The Dow then began
to bounce back and closed at 10623.
We believe the odds are still high that we have either
seen, or are at least near, a short-term low. The 5-Day RSI on
the Dow closed at 15.56 on Friday. The 5-Day RSI on the
Nasdaq closed at 18.86 on Friday. Both of those readings are
now into the extreme oversold zone below 20. Those RSI
readings can certainly go somewhat lower before a bottom, but
these extreme oversold readings suggest that unless we are
in the early stages of what will become a major decline,
the odds are we are very close to a low already.
Last Friday we discussed the fact that the 10-Day Open
Trading Index had risen to its highest, most oversold level
in over ten years. This too is a strong argument in favor
of being near some sort of low.
The McClellan Oscillator fell to a low of -120 on
Thursday, now into true oversold territory for the first time
since this decline began from the May 22 highs. As with the
RSI, the McClellan Oscillator could certainly go somewhat
lower before a true bottom, but we are already oversold enough
from this particular indicator for some sort of low.
Last week Stix reached a low of 48.90. That is only a mild
oversold reading for this indicator. The most reliable
bottoms occur when Stix falls down to 45 or lower.
The reason we stated that this decline could carry the Dow
down near the 10600 area was due to where the bottom of the
21-Day 3 1/2% Exponential Trading Band was. The Dow will
normally find support when it falls down near or below
the bottom of this band. On Friday the bottom of the band
was 10538 intraday. The Dow reached an intraday low on
Friday of 10496, within 42 points of the bottom of the band.
The Cycles called for some sort of low on Thursday or
Friday of last week. The Dow may sell off further on
Monday, but the Cycles suggest we should turn back up early
this week.
While we look for a rally to begin early this week, we are
not going to raise our long position for stock traders and
mutual fund switchers up from our current 50% long, 50% cash
position. We will not raise current long positions until we
are convinced the market is going significantly higher over
the next several months. As we have stated earlier this year,
the Lindsay Count-From-the-Middle-Section suggests that we
will see another important low this fall, in September or
October, whether or not the Dow falls to new lows for the year
this fall. The low due this fall may hold well above the
March lows of this year in the Dow. However, before we do any
new buying, we need to be convinced that the market is going
significantly higher before the decline into the fall of this
year begins. We are not convinced of that just yet. While we
do look for a rally to begin sometime early this week, we will
hold current positions for now. |
