From DWA.
I wanted to post this comparison written by DWA between the 1994 and
the 1999 market. This was in Tuesday's night report.
THE WAY THE BOTTOM CAME
In the October 25th report we discussed the way 1994's market
looked a lot like the market of 1999. While every market is slightly
different, we feel it is important to study history because they are often
times many similarities. As well, studying the history of changes in the
indicators for those newer to the Point & Figure methodology will
bring you "up to speed" so to speak, much quicker than actually
having to live through several different market cycles. In case you
didn't see the feature on October 25th we will quickly summarize the
similarities between 1994 and today. Of course, please see that feature
for a full discussion.
Today 1994
Bond Market: Rates have risen from 5.25% The DJBB fell from 105.6, a
To over 6.25% recently sell, to 95.6, the buy
Sector 70% of the sectors are now By the end of Dec. 1994
Rotation: at 38% or lower. All of the sectors were
below 50%
NYSE Bullish Only 33.1% of stocks in Was defensive for 9 1-2
Percent: NYSE are up for the year. months out of the year.
NYSE BP has fallen to 32% Bottomed at 32.1%.
Broad Indices: DJIA has held up as has the The DJIA and the S&P 500
S&P 500. The Nasdaq Comp. came in up 2.1% and down
Has been the leader. 1.5% respectively
I think that you would agree there are many similar traits between
1994's market and today. Therefore, we thought it would productive
to take a look at how the indicators began to fall into place for a great
rally once the market bottomed in 1994. As you read above, two of
the short term indicators have reversed up from low levels and that
means the offensive team, at least short term, is back on the field. We
always play the short term as it often turns into the long term.
Therefore, it behooves you to become familiar with how the indicators
work and one of the best ways is to review the bottoming action in
1994.
How the Bottom Was Made in 1994:
Dec 21st 1994: NYSE High-Low reverses up with a reading of 13.1%
after falling as low as 5.4% on December 14th 1994.
Dec 21st 1994: Percent of Stocks Above Their 10 Week Moving
Average reverses up, rallying to 35%, after falling as low as 22% on
the chart.
Dec 22nd 1994: OTC High-Low reverses up at 23.2% after falling to
a low of 15.8% on December 19th 1994.
Dec 28th 1994: The Percent of Stocks Above Their 30 Week Moving
Average reversed up to 30% after hitting a low of 22.2% on December
14th.
Jan 12th 1995: Optionable Bullish Percent reverses up to 42% after
falling as low as 35.1% on December 14th 1994. It subsequently
rallied straight up to 70% by July 1995.
Jan 16th 1995: The Dow Jones 20 Bond Average gives a buy signal at
94.6. This is the first buy signal for the DJBB since it gave a sell
signal in November 1993 at 105.60.
Feb 15th 1995: The NYSE Bullish Percent reverses up to 40% after
falling as low as 32.4% on December 14th 1994. It rallied to 62% in
August 1995 before taking a breather for a couple months.
How the Bottom is Being Made Today:
Nov 1st 1998: The NYSE High-Low Index reverses up with a current
reading of 16.6% after falling as low as 7.7% on October 26th 1998.
Nov 1st 1998: The OTC High-Low Index reverses up to 41% after
reaching a low of 32%.
Nov 1st 1998: The Optionable Bullish Percent reverses up to 42.24%
after reaching a low of 34.19% on October 19th.
As you can see, in 1994 it was like the pieces of a puzzle
falling into place. As each indicator confirmed the last one's buy
signal, the market kept getting stronger and stronger. I have fielded
some questions over the past couple of days like "with the Dow's
strong move at the end of last week, have we missed the move?" My
answer to that is unequivocally no. Remember, we don't try to catch
the exact bottom or the exact top but rather we want to catch the bulk
of the move in the middle but with lower risk than trying to catch the
exact top or bottom. Let's look at some numbers from 1994's market.
Had you bought when the first two short term indicators
reversed up on December 21st 1994 the Dow Jones was at 3801.80 and
the SPX was at 459.61. The Dow and the SPX rallied 4.8% and 5.4%
respectively before the NYSE Bullish Percent reversed up. However,
had you waited for all of the indicators to be positive and did not invest
at all until February 15th 1995, you still were up 28.4% in the Dow
and up 27.1% in the SPX for the year 1995. For the whole year the
Dow Jones was up 33.5% and the SPX was up 34.1%. Needless to
say, you caught the vast majority of the move with less risk. That's
what we are aiming to do. We don't try and catch a falling knife but at
the same time once the indicators suggest the risk is low and it's time
to get in, we start initiating new positions. When you begin investing
with the short term indicators all near or in oversold territory its like
trying to commit suicide jumping off the curve! We know that the
newspapers and financial media will be telling us things look terrible.
They will use all types of numbers and figures -- inflation numbers,
Greenspan's comments, unemployment figures, durable goods, etc, etc.
to try and tell us that the market is headed lower and this is why it can
not rally. However, remember that the market looks ahead 6 months,
12 months, 18 months into the future. Economic data tells us what
happened in the past. It's like 1990's market at the bottom when
Greenspan said that we were headed for a recession and in fact we
were coming out of one. The NYSE Bullish Percent is a leading
indicator and it was telling us it was a great time to get into the market.
That's also when Banks were bottoming out at 10% and we thought
people were going to put us straight jackets for recommending the
bank stocks. It's tough to go against the crowd and be a contrarian but
we have a system that we believe in and it is telling us that a bottom is
being made. Since only the short term indicators have reversed up we
have our stop loss points set. If we are wrong, then those stops will
protect the bulk of our capital and the damage will be minor. We
follow the game plan and that means initiate new positions here in
strong stocks which are members of strong sectors. See Monday's
report for a whole inventory of ideas and rest assured we will bring
more ideas your way in the coming reports.
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