From IBD's website:
"
The Big Picture
Wednesday, November 1, 2000
Printer-Ready Version
Nasdaq, Dow Surge Again
In Significant Trading Day
Investor's Business Daily
The Nasdaq changed from a bearish to bullish costume just in
time for Halloween.
The switch came as the tech-dominated index followed
through Tuesday on a rally that began last week. The
composite vaulted 5.6%, its 10th-biggest percentage gain on
record. Volume swelled above 2.1 billion shares.
The session had all the elements of a classic follow-through
confirmation, a signal that hasn’t missed the beginning of a
major market advance.
First, the Nasdaq shot up much higher than 1%. In past
years, a 1% move was sufficient. But with the market’s
volatility and the immense power of big mutual fund families,
you want to see a gain of at least 1.5%.
Second, volume expanded 23%, a healthy increase in trading.
Paired with the Nasdaq’s point gain, the session was clearly
powerful.
And finally, the follow-through fell on the fourth day of the
rally. Significant follow-throughs usually occur on the fourth
to seventh days. Follow-throughs after the 10th day
generally point to a weaker rally.
You could argue the S&P 500 also followed through. The
big-cap index ran up 2.2%, its third straight gain greater than
1% and the second in higher volume. Three strong gains are
sometimes all an index needs to confirm a change in direction.
The Nasdaq - and perhaps the S&P -treaded in the footsteps
of the Dow, which flashed a marginal follow-through on Oct.
24. The blue-chip average came on again in more convincing
fashion Monday, although the cyclical-led advance left a lot
to be desired.
Don’t take a confirmed rally as a green light to buy with
abandon. Rather than jumping back into familiar and perhaps
damaged stocks, look for new names breaking out of sound
price bases. Careful buying and disciplined loss-cutting form
your best defense in any market.
Even powerful follow-throughs don’t guarantee a long,
profitable bull market. A fair number may fail. Just look back
to late May and early June when all three of the major
indexes muscled higher. That rally created some opportunities
for nimble traders. But stocks soon ran into resistance.
Some of the same issues continue to bedevil the market.
Valuations remain a concern in the tech sector. In the five
months since the May lows, companies have reported two
quarters of profits. That’s let earnings catch up to prices in
some cases. But many techs are still trading at frothy levels
that don’t lend themselves as launching pads for another big
advance.
Other sectors offer more reasonable prices, although profit
growth isn’t as robust. Don’t expect insurance and medical
stocks - two sectors that have shown promise - to lead the
market on a repeat performance of 1998 and 1999.
Recent economic reports point to a soft landing. That’s good
for interest rates. But how will earnings, the biggest driver of
stock prices, fare?
The election could be another factor at work. The market
started falling in September as Al Gore’s populist message
gained momentum. IBD’s poll on Tuesday showed George Bush
with his first statistically significant lead since Labor Day. Has
the market cast its vote?" |
