October 28, 2000
Market Overview:
There's not much point in indulging in an orgy of speculation as to the
market's next move. We'll know soon enough, with the first inklings becoming
evident as soon as the end of the week. Mutual fund tax loss selling and
portfolio prettification will be complete by the end of trading on Tuesday. We
also will be entering a favorable seasonality period, one that historically
runs from the end of October to the beginning of May. Throw in a couple of
wild cards, namely a contretemps in the Middle East and a U.S. presidential
election, and you have the makings of an O.K. Corral style showdown between
bulls and bears.
While the seasonality factor and the intermediate term technical charts favor
the bulls, any late year rally we do see might not be as vigorous as what
we've grown accustomed to. For one thing, all the major market indexes are
underwater for the year, and so many stocks are sleeping in Davey Jones's
locker that tax selling, by individuals this time, will likely persist through
to the end of the year and at a heavier pace than what we've seen in the last
few years. For another thing, there are those wild cards I mentioned.
Be that as it may, it would appear that the market has seen its bottom for the
year. Last week I predicted profit taking in the tech stocks and yet another
retest of the lows, and the Nasdaq made that forecast good by shedding some
200 points on the week, and a great deal more on an intraday basis, with the
most gruesome carnage coming in the optical networking space. But, also as
predicted, the lows held, and we now can see a developing pattern of higher
lows, which is something technical analysts like to see when they're calling a
bottom.
In fact, the Nasdaq may have put in a W shaped double bottom pattern last
week. To remain one, the second bottom low of 3081 will have to hold. And
we'll have to go on and take out resistance at 3535, the W's middle peak.
Watch carefully.
As for the Dow, it has benefited from the flow of spooked money coming into
its more defensive offerings, and is now approaching ST overbought territory.
But it's still looking positive on an intermediate term basis. One of my
favorite buy triggers, an uptick in the weekly MACD histogram, was pulled last
week. We have yet to see a similar buy trigger in the S&P, probably because
the S&P has a far heavier weighting in technology.
In sum, there are still a lot of questions overhanging this market, but we're
starting to get a few answers. And we should have a bunch more by this time
next week.
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