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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 662.63

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Nov 19 4:00 PM EST

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To: donald sew who wrote (27294)	9/26/1999 10:58:00 AM
From: Lee Lichterman III	Read Replies (1) of 99985

When talking about the A/D on another thread, a poster put this thought out there. It did make me stop and think some... ...>>I've watched the A/D lines and wouldn't argue your concern over the divergence. The A/D lines have their weaknesses in predictive quality as they don't measure the magnitudes of the advance and decline. One could speculate the, let's say, absolute divergence by some notional projection; that would be dangerous without the data to support it...or at least I'm not willing to stick my neck out on that one <g>. But let me make at least a notional argument that the A/D divergence may not be "as bad" as it seems. The equities market may be fragmenting into two groups. Industrial based equities vs. communications/information equities. The former heavily populating the lower line while the later heavily populating the advance line. This doesn't imply that the magnitude of the divergence is "just", but that it may be normal to have some growing divergence over the long run...5+ years. I might add that I think that overall global GDP growth is fueled out of, directly or indirectly, the explosion in communications/information technologies and that growth has just started in the last few years....<<< Message 11360534 I am not backingthe "it doesn't matter" argument but this does make a semi valid point that the "rotation" in this market has gone to technology growth based investment thus the broader market could be flat while techs move up, also after a while of seeing the techs win at the expense of growth in non-tech stocks, the money finally started moving out of the "unfavorable" non-tech dropping the stocks since there are no new buyers and into the growth stocks. While this doesn't justify all the A/D divergence, it could take some of the repurcussions out of it. This could be further supported by a look at what makes up the indexes now days. Every new hole in the major indexes was replaced with technology stocks over the last few years instead of the old fuddy duddy stable slow growth issues that paid real dividends. To scotty regarding earnings. I think we might actually have decent earnings out of at least the box makers this quarter as Y2K buying peaks but it will drop off hard next spring. I believe I posted here before about how the Air Force is buying PCs like crazy right now finally replacing the X86 processors with Pentium class machines. We have exclusive contracts with DELL and MUEI and I imagine large corporations are doingthe same. For this reason I expect the real ugliness in tech to come next spring unless the market is truely 9 months ahead of the game and starts selling these guys off later this year. You couldn't pay me enough to own a box maker next spring <ggg> Look for the smart money to start bailing while the earnings look good in the last quarter as J6P buys all the upside surprises not realizing those were the last sales they will make for the next few years. The smart money will hype them to the stars as they unload to the unknowing masses. Next spring/summer, there will be the usual tech sell off except this time there won't be abounce. I think this correction is just the warm up to reward the Buy the dipsters one more time so they are good and complacient next summer. I would bet my life on it as I am sure that will be the last hurrah and I firmly believe that that will be when the bull takes it's last breath. I am not sure how to trade this month but I know what I will be doing next April. <ggg> Techs only hope will be the server and software providers aiding growth of the internet, boxmakers and DRAM makers will be thing of the past. Good Luck, Lee

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