>> But I do know that huge % swings are not the sign of a healthy market. <<
The more confusion the better. Bottoms never form when everyone comes to a consensus and turns bullish. Bottoms many times are formed when there is total chaos and confusion. That is exactly what we saw this week. We saw everyone scramble to get long as fast as they could, and then 2 days later we saw many do a complete 180 and sell out or even switch back to being short. Would you call those strong hands? No, those are speculators trying to jump on the bandwagon. This bottom will be much more healthy now that they just got shaken out.
Now the strong hands can move in, without any fear. These weak hands are so confused that they won't even have the heart to jump in--at least not until the Naz can have a three day winning streak or break above some technical levels. The simple fact that they will be waiting to buy this time around just means that they will be the ones to keep the rally going when the strong hands take it up the first part of the way.
>> 15 of the 17 largest % days on the Nasdaq have occurred within the last year, and the index is within striking distance of it's lows. <<
Ok, let's take them one by one:
1) The number one largest % gain was obviously just a few days ago and occurred on record volume. Breadth was robust and 3.15:1 positive. It also occurred following a classic retest/double bottom, with one of the most positive divergences in history. The first time the Nasdaq hit 2300 on 12/20 there were approximately 940 new lows. The second time the Nasdaq hit 2300 on Jan 3, there were approximately 131 new lows, for a difference of about 800! That is HUGE.
2) The second largest percentage gain in history I have already talked about. (It was the largest at the time). It occurred on 12/05/00 (Greenspan's speech) and was not even close to record volume. I don't have the exact figures, but I do have figures for the top 10 volume days and it didn't make it. The volume clued you in that this was not going to be lasting. Advancers led decliners less than 2 1/2 to 1. It was over 3 to 1 on Wednesday
3) 5/30/00. This was the largest % gain ever at the time. But you know what? It occurred on only 1.46 billion shares. Obviously 1.46 billion shares was more meaningful 7 months ago, but it was nowhere near any record. Even more telling, advancers led decliners just a hair below 2 to 1! It came very close, but couldn't even muster 2 advancers for every decliner. Stack that up against Wednesday's record gain where advancers led decliners 3.15:1. Even though the breadth and volume wasn't very impressive, the Nasdaq STILL shot up from the record % gain close of 3459 on 5/30 to 4064 three weeks later 6/21. Also, the Nasdaq was down the next day following this record gain.
4) 10/13/00. This was only the second largest % gain for the Nasdaq at the time. The volume wasn't light, but not anywhere near top 10. It was 2.07 billion, and actually down from the previous day! Remember we had 47 days with volume over 2 billion last year so this was not the kind of heavy volume you were looking for. Advancers led decliners 2.06:1 The market actually went down for a few days after this move, but 10 days later was over 150 points higher on the close. 10/13--3316 up from 3074 day before. 3 trading days later, 10/18 back to 3171, but then 3 more trading days after that 10/23--all the way back up to 3468. All of these are closing prices. So in all of these examples so far there has been dip after the record gain but a week to month later the market was higher than the close of the record % gain.
5) 10/19/00. This was only the 3rd highest percentage gain ever at the time. The volume wasn't light, (2.35 billion), but it was down from the previous day and STILL not in the top 10. The previous day's volume was in the top 10 and was on a down day. This 3rd highest % gain was on less volume then the down day that preceded it! Breadth was 2.49 :1 which is pretty good actually, but STILL not nearly as bullish as 3.15:1 we saw after the Fed cut. This time the market was only slightly higher a couple weeks later, but at least it was higher! 10/19--3419. Two weeks later 11/03 Nasdaq closed 3452.
6) 12/22/00. This was only the 5th best % gainer at the time. Volume was 2.23 billion, far from the top 10 and down significantly from the prior day's volume. (We were up 8 points the day before on heavy volume). Once again, breadth was only 2.08:1. Nowhere near the 3.15:1 we just saw. Once again the market dipped the next day following this huge gain, and we were higher a couple weeks later. 12/22/00 Nasdaq closed 2517. Wednesday 01/03/00 after the Fed we closed at 2617, a hundred points higher than the record gain of 12/22.
7) 10/21/87. It's difficult to find figures this far back in time, but I think it's safe to say that the market bottomed in October of 1987, and is much higher now!
8) 04/18/00. This was the second highest % gain at the time. Volume was 2.15 billion--pretty heavy back then, and it's not clear to me if it is in the top 10 or not, but from my top ten list I see April 4th, 14th, and 17th were higher volume days, so at the time it was at best the 4th best volume day ever. Still this one is kind of interesting. The volume was still pretty healthy, and when I check breadth I see that it was 3.1:1 So this is the closest example I can find to the rally we saw a few days ago. Even more interesting, I noticed we slid 300 points over the next three days yet only five days after that we had climbed all the way up 3958 on the close, almost 200 points higher than the huge % gain. Sounds very familiar to 1/03 and 1/03 had slightly better breadth and clearly better volume! 04/18/00 Nasdaq closed 3794. Three trading days later 3482 on 04/24/00. Five trading days later 05/01/00 Nasdaq closed 3958.
9) 04/25/00. Second highest percentage gain at the time. Volume only 1.625 billion. Nowhere close to a record. Advancers led decliners 2.18:1 which is ok, but not impressive. Once again the market dipped the next day (seems like that happens just about every single time we have a record % gain). Even so, the market closed almost 250 points higher 4 trading days later. 04/25 = 3711 and 05/01 Nasdaq closed 3958.
10) 04/17/00. Once again second highest % gain at the time. This was the third highest volume ever at the time, I show 04/04 and and 04/17 higher. Interestingly, breadth was negative 3:2! So I don't think this is a good example to use, although--the Nasdaq was still over 400 points higher than this close 2 weeks later.
I'm not going to go any further. I think I have proven a few things:
1) Bears like you have gotten lazy and don't do your homework because it has gone your way for so long. You just spew the same old negative message over and over and don't bother to try to see if anything might be different this time.
2) I think I have clearly shown that there is an extremely high chance that the market (even if only temporarily) closes higher than the record % gain close within the next couple weeks. Sometimes it takes less than a week sometimes it takes two or three. On 1/03 we closed at 2617, there is a high likelyhood of closing above 2617 in the next couple weeks.
3) I have shown that this rally had a better percentage gain, far better volume and far better breadth than every other example cited. (I didn't go get the figures for the 1 example from 1987).
>> Now, who's argument is 'old and tired'? <<
Yours! |
