Many people who don't subscribe to my e-mail service have erroneously concluded that I only provide an Interpretation of Moneytalk. The truth is, I send out more Special Alerts than I do Interpretations. The Special Alert I sent out last night is set forth below. This Alert contains my analysis of the positive divergences that I saw in the Nasdaq after the close of the market on Tuesday, January 2, 2001. This is the first ever Special Alert I have publically posted, since they are reserved for my subscribers. I hope you enjoy it.
David K's Interpretation of Moneytalk, Educational Links and Other Financial Information - Special Alert - JANUARY 2, 2001 8:30 p.m.
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IMPORTANT SPECIAL ALERT! READ ALL OF IT!
EC: Market Internals, Market Internals - that has been my mantra for the last sixty days. Well, today you will get the fruits of my labor. No guarantees as to accuracy of course, but it is fascinating stuff.
EC: First off, I am sure by now you have all read Aaron Task's article in thestreet.com which references Bob's prediction of a counter-trend rally a couple months back. As I stated in a previous e-mail, I didn't see the same positive divergences occur in the Nasdaq that would signify a near term bottom -- at least not along the lines that Bob detailed on the broadcast during the May counter-trend rally.
EC: Each time we hit a new low in the Nasdaq on a closing basis, I compared the data, crunched the numbers, and although on a few times there were positive divergences, as I references in previous Interpretations, there was no grand slam positive divergences across the board. And of course, there was no bottom to the counter-trend rally.
This sparked me to do more and more research into analyzing the markets from a technical standpoint, including research into the historical basis for counter-trend rallies and related topics. Sometimes I would drink two Starbucks's Iced Caffe Latte before starting my research. This allowed me to read at lightening speed. Unfortunately, the data stayed in my memory about as long as the coffee stayed in my system -- if you catch my drift.
In any event, my analysis suggests to me at least that there were positive divergences today, the type of which I hadn't seen since the last counter-trend rally. Hopefully, it will mark a near term bottom in the Nasdaq today - at least if you buy into this market internal analysis stuff. Now, before we go any further, let me issue the following two disqualifying statements:
David K is a ding dong.
David K knows absolutely nothing.
Ok, now at least if I am wrong, you can't say I didn't tell you that I was a ding dong. Indeed, if you tell anyone that David K said that a near term bottom has formed in the Nasdaq and I am wrong, your friends will say, why did you listen to that ding dong, he knows absolutely nothing.
In all seriousness, even if I am right, and even though Brinker hit the Nasdaq counter-trend rally bottom on the mark back in May, Lightening Rod Brinker and I part ways in one important category - the exogenous event category. Bob seems to place little weight on the "exogenous event" category until after it has disturbed what might otherwise have been a brilliant call of his. There are numerous examples of this going back the last decade. Perhaps I am a little bit more cautions, or pessimistic, but I always wonder what if? What if we went to war? What if Greenspan got seriously ill? (which I hope never happens). What if terrorists bombed the stock exchange? What if Cisco announced that its earnings are way below expectations? Too many "what ifs" for me to place that much stock in predicting the exact bottom to a given day. (no pun intended)
That said, let's look at what I came up with because it is definitely interesting stuff.
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IDENTIFYING THE NASDAQ NEAR TERM BOTTOM!
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First thing I did as I was analyzing the Nasdaq data, was compile an ongoing list of each new closing low in the Nasdaq. I compared the market internals each time the Nasdaq closed at a new low. Here is the list:
NASDAQ Calendar Year 2000-2001
April 14th - new low of the year closing at 3321
May 24th - breached April 14th low closing at 3164
Oct. 12th - breached May 24th low closing at 3074
Nov. 10th - breached Oct. 12th low closing at 3028
Nov. 13th - breached Nov. 10th low closing at 2966
Nov. 20th - breached Nov. 13th low closing at 2875
Nov. 21th - breached Nov. 20th low closing at 2871
Nov. 22nd - breached Nov. 21st low closing at 2755
Nov. 28th - breached Nov. 22nd low closing at 2734
Nov. 29th - breached Nov. 28th low closing at 2706
Nov. 30th - breached Nov. 29th low closing at 2597
Dec. 19th - breached Nov. 30th low closing at 2511
Dec. 20th - breached Dec. 19th low closing at 2332
Jan. 2nd - breached Dec. 20th low closing at 2291.
Ok, I am going to go through all of the market internals which demonstrate positive divergences between the Nasdaq close today (January 2nd) versus the Nasdaq close on December 20th. Let's crunch the numbers:
1. Price
On December 20, 2000, the Nasdaq (or OTC - Over the Counter) closes at a new low for the year of 2332. (Incidentally, the QQQs closed at $55 per share on that day). Today, January 2, 2001, the Nasdaq closed at 2291. (QQQ closed at about $53-1/2 today). A new closing low in the Nasdaq gets us past the first hurdle.
2. Volume
On December 20th, there were approximately 2.7 million shares traded on the Nasdaq . Today, the volume on the Nasdaq was approximately 1.9 million shares. Therefore, we have a new closing low in the Nasdaq on lower volume. The second hurdle is complete.
3. Advancing Issues
On December 20th, there were 829 Advancing Issues. Today, there were 1,648 Advancers. Very promising indicator. More stocks were advancing than declining in comparing the two days. In fact, there was a 98% increase in advancing issues from the previous closing low. Bullish Indicator!
4. Declining Issues
On December 20th, there were 3295 Declining Issues. Today, there were only 2,333 Declining Issues. This number also looked good as it reveal a 29% decline in Declining Issues. Bullish Indicator!
5. New Highs
On December 20th there were 53 new highs. Now, here is where it gets a little dicey. The data on new highs was very inconsistent. The number of new highs ranged from 42 all the way up to 59 in the sources that I check. That means, it is questionable in my mind whether positive divergences existed in this category. Since I wasn't sure what number was accurate, for purpose of this exercise I give this category a neutral rating.
6. New Lows
On December 20th there were 788 new lows. Today, there were only 118 new lows. Less lows is good. And that is a dramatic decrease in the number of new lows. BULLISH INDICATOR!
7. Advancing Volume
Note: I don't recall LRB ever discussing advancing and declining volume as a market internal he was looking at. That doesn't mean he didn't, he just didn't mention it. This was one of the other market internals that I came across in my starbuck induced frenzied research which I thought carried some weight.
On December 20th there were 284,202 advancing shares. I was hoping there would be more advancing shares today and guess what? There were! 393,106 advancing issues today. BULLISH INDICATOR!
8. Declining Volume
On December 20th there were 2,441,782 declining shares. I was hoping there would be more less declining shares indicating less selling pressure and there was! Today, there were 1,436,740 declining shares. BULLISH INDICATOR!
Conclusion. Who knows. Clearly, the market internals of the Nasdaq today evidence positive divergences when compared to the previous Nasdaq close - the one possible exception being the number of new highs. Will that negate the analysis? I have no idea. All I know is I have been crunching these market internal numbers for the past two months and today's analysis looked more promising than ever before. Like I said, this is simply my Interpretation of the data and I could be completely wrong. This is mostly an exercise I do. Long term investing is where you make your real money, not in trading. Still, this stuff is interesting and I sure hope this data does mean a near term bottom is in place because I put the last of my available trading money into the QQQs today!
IMPORTANT: Please do not take any of this as a recommendation of any sorts. I am just sharing with you my analysis and thought process.
Final Thoughts from David K: Ok, I am exhausted. The number crunching takes its toll. Perhaps the Starbucks is wearing off. Once again, wishing everyone a healthy and happy New Year.
- David
DISCLAIMER: Do not construe anything in my service as constituting financial advice. In addition, this e-mail is not a substitute for listening to Moneytalk. It is only my interpretation of some of what is discussed on Moneytalk, along with additional educational information that I include, editorial comments about the market, helpful financial links, guest contributors and even humorous remarks. If you want to know what was actually said verbatim on Moneytalk, listen to the show live. You can even listen to a re-broadcast of past Moneytalk shows on the Internet via the archives. The web site bobbrinker.com has all the links to the ABC Radio Network Stations that broadcast the show live and via the Internet. I am just a listener to Moneytalk and provide this service on my own volition. I am not associated with ABC Radio Networks, Moneytalk or Bob Brinker and this service is neither sanctioned by, nor written under the auspices of ABC Radio Networks, Moneytalk or Bob Brinker. This e-mail is simply my own interpretation of some of what is discussed on the show, along with educational information I provide that I think is useful to help better understand financial issues. There are also editorial comments, useful links and contributing editors. I am also a frustrated writer and comic and try to weave humor throughout. You should not rely on any statement made in David K's Interpretation of Moneytalk, Educational Links and Other Financial Information as constituting financial advice.
Copyright 2000 David Korn, L.L.C. |
