Nasdaq 5000 This year.......
Top Market Timer Says, NASDAQ 5000
This Year
An InvestorLinks Exclusive Report
From the InvestorLinks.com News Desk
By: Peter Santini, January 11, 2001
Like a hot knife through butter, the NASDAQ should go through 5000
this year. That's what Don Wolanchuk says and he's one of Market
Timer Digest's Top Market Timers, having won 17 annual timing
awards since 1989. Some of his greatest timing calls were widely
ignored by the investment community. Wolanchuk forecast the bull
market rally following the 1987 crash and called for a DJIA above
10,000. When NASDAQ traded at 1800, he forecast a NASDAQ 5000. In
1999, at the bottom of the oil market, Wolanchuk called for $30/barrel
oil. He was Market Timer of the Year in 1995, 1996, 1997 and 1999.
In the interview
below, Wolanchuk
calls for a "fast and
furious" return to
NASDAQ 5000. But,
that's only the first
level. He's calling for
a NASDAQ 10,000 on
its way "towards
20,000." He forecasts
Intel (INTC, Chart,
Boards) reaching as
high as $75/share,
Microsoft (MSFT,
Chart, Boards)
returning to
$112/share, AT&T (T,
Chart, Boards)
reaching $60/share, and Procter and Gamble (PG, Chart, Boards) at $118/share.
Wolanchuk uses numerous historical comparisons in describing the current market
conditions and helping explain why sentiment is as it is. In explaining why we should anticipate
a major rally in the financial markets, he offers various technical measures, such as the VIX
Index, the ARMS Index and the Advance/Decline lines. This may be the most important
interview you will read this year.
Investors and curiosity seekers may wish to visit Don Wolanchuk's website for additional
information about his market timing techniques at www.wolanchuk.com
INVESTORLINKS: How do you currently feel about the condition of the markets?
WOLANCHUK: When it becomes hopeless to everybody, which it appears to be now… In fact a
few weeks ago, with the American Association of Individual Investors, you saw 51 percent
bears and about 30 percent bulls. That's a flight. And rather amazing because the DOW is
basically where it was a year, year and a half ago. NASDAQ the same way. The market's taken
a time out with the DOW about 10,000. The same thing happened in 1991 - went side ways,
drove everybody crazy. It's taken a great breather. Interestingly, we get all the bluebirds out and
you've heard the words "crash" and "bubble" and every other thing from these bears.
INVESTORLINKS: The word "recession" has been mentioned more than a few times recently.
WOLANCHUK: Yes. After the crash of 1987,
we had a recession and the market went
straight up. Recession, fear of the stock
market, everybody moving into money market
funds and talk of bear markets is what
bottoms are made out of. Proof of that is in
the technical picture. While this has been
going on, the base 52-week new highs have
been steadily climbing for a year now - the
stocks making new 52-week highs. Last
week, there were over six hundred. The
weekly Advance/Decline line just keeps
climbing and climbing and climbing.
Technically, we've got a fabulous situation in
the moving averages of put/call ratios. We've
got numbers that we haven't seen in years.
We've got an ARMS index in the moving
average - the last time that I saw 130. I can't
remember seeing a ten day ARMS at 130. Even while the DOW has been going up here,
recently, the five-day trend has been staying above eight hundred. That's incredible! The DOW,
where is it? It's over 1000 out of the October low. In the mean time, we've got everybody being
chased out of the stock market. It's absolutely a fabulous situation.
INVESTORLINKS: Is it fabulous enough that it's time for investors to rush back in?
WOLANCHUK: They're not going to do it no matter what I say. If I tell them to jump in here with
both feet, they're not going to listen to me - just like they didn't listen to me after the crash of
1987.
INVESTORLINKS: For those that do listen to you, what should they expect?
WOLANCHUK: Every time that we have this situation, the stocks are served up on silver platter.
The interesting thing is the wipeout in a lot of NASDAQ stocks is typical of an industry that
attracted a lot of people - the Internet business. A horde of people went in there for fast and
easy money. A lot of these companies, of course, are not going to make it and you had the
initial shake out. You had all these troubles with financings that turned into death spirals.
INVESTORLINKS: Where do you see the NASDAQ heading?
WOLANCHUK: When the NASDAQ was at 1800, I said it was going to 5000. It's a perfect
correction. I haven't seen anything in the wave structure to negate my idea that it's going to
head - the potential is that the NASDAQ is going to start flying up past 10,000 towards 20,000.
INVESTORLINKS: The NASDAQ?
WOLANCHUK: Yes, the NASDAQ.
INVESTORLINKS: From where to where?
WOLANCHUK: Past 5000 and a clean shot through 10,000 on
it's way to 20,000.
INVESTORLINKS: You're going on record that the NASDAQ is
going to 20,000.
WOLANCHUK: It's going to go beyond that eventually. There's going to be a lot of washouts in
between. This is the best washout.
INVESTORLINKS: Do you think we're ever going to see an opportunity like this again?
WOLANCHUK: Just like we never saw an opportunity when it made it's low in 1998. Here we
have a situation where everybody got notoriously bullish in the NASDAQ. The problem there
was they were right being bullish, but they were wrong in the way that they executed it. That was
by buying stock with borrowed funds on margin accounts. It wasn't anything else, but people
were forced out of the market because of margin selling. Now look how clean this market is. Is
anybody, who was on margin and who got wiped out, going to go near the margin department
for probably months or years? Of course not. This market is very clean in that regard. So we
don't have to worry about forced margin selling anymore. We don't have to worry too much
about poor sentiment. After the crash of 1987 everybody thought, all through the next two years,
that it was bear market rally. There's nobody going to be calling this a bull market for long time
even though the weekly Advance/Decline line bottomed out a year ago.
INVESTORLINKS: Do you think we're still in a bull market?
WOLANCHUK: Absolutely. If there's nobody
left to sell and everybody's bearish…I got the
same thing in 1987. I feel a lot better about it
now, because I'm in the minority. What's so
funny is that the media said that the NASDAQ
had its worst year in history. What they don't
say is that, a year ago, the NASDAQ is where
it is now. For the first six months it was the
grandest six months in the history of the
NASDAQ. Then, you had the worst six months
and you ended up back where you started.
That's exactly what the DOW did in 1987. All it
did was go back to where it was in 1986 and
the whole process started all over again. It is
a hump in a chart that is continuing it's up
climb. In the meantime, these stop clock
bears who yet have to get religion… Can you
imagine some of these stop clock bears who
have been calling for the end of Western Civilization for the last fourteen years?
INVESTORLINKS: What about the bears?
WOLANCHUK: This market's not going to let them off the hook. Here we are above 10,000
pressing 11,000. If I'd told you 15 years ago, after the crash of the DOW, when everybody hated
it, that they would hate it just as much above 10,000 you would have thought I was a nut. Here
we are above 10,000 and everybody hates it. We are at a high level consolidation that's been
stretching out for a year and a half or so in the DOW and the NASDAQ - a flawless ABC. What
we call an ABC irregular flat correction in terms of Elliot where the B-Wave made the high at five
thousand. Until proven other wise, anybody who says we're in a bear market - and at the end
and we'll never see these highs again for years, which we've heard a lot of… You've got to
remember where all this talk came from. It came from the people who missed the entire
advance to begin with. They have really no credentials to be making those kinds of statements.
In the meantime I never thought that I would be in the minority bullish camp once again with the
DOW pressing eleven thousand. It's a rather fabulous situation. All these companies that have
taken whacks like Intel (INTC, Chart, Boards), General Motors (GM, Chart, Boards). There's
some of these DOW stocks actually are screaming new highs like the banking stocks. What
we've had is a rotational exercise, which is typical of a high level consolidation in the primary
market. While the secondary and most speculative market, as you know the NASDAQ, has
gotten it's comeuppance because of the margin buying.
INVESTORLINKS: Where does that leave us?
WOLANCHUK: Now we've got a cleaned up market where nobody is going to go near the
margin desk. We're set up for a resumption of the bull market. In certain sectors the bull
markets been intact for quite awhile.
INVESTORLINKS: What about the market's short-term prospects?
WOLANCHUK: Actually, the markets have been rallying while the NASDAQ is re-testing its prior
lows. The Wilshire Small Cap on a weekly basis has a great-looking chart pattern as far as I'm
concerned. It's declined and held its 150-week moving average. It's a mile out of its hole made
in 1998. It's a classic little consolidation. But, if you look at the NASDAQ it's only declined in
three waves off the top. If you're an Elliot Wave Analyst and you're bearish, you've got to say to
yourself, "If that's only three waves, and that's the second wave pull back, a third wave blast of
historic proportion can absolutely be born out of that." Because of that potential, I'm certainly
not going to miss it, if that's going to happen. The wave structure of the NASDAQ certainly
allows for that. Here we are with a VIX Index (CBOE Market Volatility Index) still above 30
percent. It's been hovering above 30 percent since September. It's taken a stab to 37 percent
during that time frame. This is a long period of high VIX readings without any solid detraction in
a primary market. This is bullish. A market that looks ugly and doesn't go down is a market that
you want to own.
INVESTORLINKS: What are your thoughts on the recovering telecom sector?
WOLANCHUK: There's no doubt about it, but
the telecom sector has gotten awfully
oversold, even more oversold than the
NASDAQ. A lot of these wire houses couldn't
stand it so I think they put out a big buy on
AT&T (T, Chart, Boards). Here's a stock that
technically appears like it's going to go all the
way back to $60/share because of the gap
situation. When a futures contract, or a stock,
declines or advances leaving lots of gaps in
the chart, all of those gaps eventually get
filled. Intel (INTC, Chart, Boards) in my view is
a prime candidate for that. INTC left all these
huge gaps all the way down and Intel has got
$75/share written all over it because of these
gaps. The same thing with Microsoft (MSFT,
Chart, Boards). I'm seeing Microsoft going
back to$112, $115 or higher. It's the gap rule.
The only reason that the NASDAQ declined in the first place was to fill all the gaps it left, when it
initially thrust out of the hole over a year ago. There were three large gaps. They went down and
filled them all. We had the S&P 500 futures bottom over a week ago at 1288. The next day it
opened on a huge gap.
INVESTORLINKS: How soon should we expect these strong moves?
WOLANCHUK: We've been through some speedy moves here. We've had a bull market and a
bear market - people going from extraordinarily bullish to extraordinarily bearish, all within a
number of months. These things are moving really fast. Look at the volatility we've seen in the
last number of weeks. We went through this 1991. While this is going on, sentiment is
improving. It's just like 1991 all over again. It went up and down, drove everybody crazy for over
a year. Not much has changed.
INVESTORLINKS: Are you pretty much saying that we should expect more volatility.
WOLANCHUK: I think we've had the bulk of it. My only concern is the cycles. We've got a
four-year cycle due in 2002.
INVESTORLINKS: What does that mean?
WOLANCHUK: That means it's going to be marked by
something. Let me give you an example. We had a four-year
cycle low due in 1986. Everybody prepared themselves for it in
early 1986 as measured by the daily Advance/Decline line. It
topped out and started declining, declining, declining as
everybody bailed out in anticipation of a four year cycle that was
due in 1986. In September 1986, we got some sort of
hammering job, but in December of 1986, the daily A/D line
was making twelve-month lows while the DOW was virtually at
historic highs. That got everybody really bearish. Then, the market exploded to the August 1987
peak. There were all kinds of technical problems there. The 1986 four-year cycle low basically
was met in 1987. The next four year cycle low if you count forward four years was 1990.
Remember how ugly that was? Then, four years later was 1994. Remember how ugly that
was? Four years later was 1998. So here we are, four years later from 1998, we have 2002.
Somewhere between here and there, it appears that everybody is preparing for this four-year
cycle, by bailing out of the stock market in anticipation of it. What everybody is anticipating, in
my view, could prove to be something similar to what we saw in 1987: The market going crazy.
INVESTORLINKS: Can you clarify how the NASDAQ fits into this?
WOLANCHUK: Basically from the 1998 low, the NASDAQ has retraced exactly 75 percent of that
entire advance in a clean three-wave fashion, which is exactly what the DOW did in 1987. It
went back to the area of the prior consolidation. It was a consolidation in 1999. All through that
year was choppy. It went up very slowly. I'm saying that the NASDAQ is set up, until the wave
structure says other wise, to go through 5000 like a hot knife through butter - to go through
10,000 and a move towards 20,000.
INVESTORLINKS: Over what period of time? Five years?
WOLANCHUK: No, the percentage. Remember it is based on percentages. If I'm right, the third
wave is going to be a lot faster than the move that NASDAQ made from the 1998 low to this
past high (March 2000). It should probably take half the time that it took on that last big move. If
I'm right, we'll go through 5000 inside this year sometime.
INVESTORLINKS: Inside this year? Are you serious?
WOLANCHUK: It did it before. It went from 1200 to 5000 in a space of a year (and some). We've
had a three-wave decline. If indeed that's a second wave pull back. It still counts that way. A
third wave is going to be kind of fast and furious. Because of that potential, I'm certainly not
going to say it's not going to happen. I'm going to be prepared for it if it does.
INVESTORLINKS: Could you explain how this works?
WOLANCHUK: At the end of a second wave pull back, a second wave pull back is … they've got
a lot of things going for them. People have got to be convinced that they will never see the
highs again. People have to be convinced that they don't want any part of it. We're seeing a lot
of this. After the markets crashed in 1987, one of the prominent bears said that the chance of
the DOW getting above 2700 was 10 percent. Here we are above 10,000. By the way, that bear
is still bearish. It is very tough being bullish because the market makes it easy to be bearish.
INVESTORLINKS: So which sectors are going to be hot?
WOLANCHUK: The sectors that everybody hates.
INVESTORLINKS: Such as tech stocks?
WOLANCHUK: Take the technology sector -
completely sold out as far as I'm concerned.
Retail? Everybody loves to hate retail. In the
meantime, we see Home Depot (HD, Chart,
Boards) has already gone from $35/share to
$52/share over the last number of weeks.
Intel has got the kind of formations that I'm
just drooling over because of all the gaps left
open above the market. I'm rather excited
about what I see.
INVESTORLINKS: Do you think the markets
will struggle this year?
WOLANCHUK: It's going to be a mental
struggle. I don't know about the price
struggle. I don't think there is going to be a
price struggle. I think there is going to be a
mental struggle. People are going to struggle with price.
INVESTORLINKS: Do you mean that investors are going to be looking at an up market and
won't believe that it could go higher?
WOLANCHUK: They did that in 1987 after the crash. If you got caught and got wiped out, you're
not going to go near the stock market. Investors will listen to high profile bearish gurus who will
be telling them it's a bear market rally. We had a prime example of that happening after 1987.
Now I'm even more bullish because of the recent correction.
INVESTORLINKS: Is there anything that would change your mind?
WOLANCHUK: Yes, if the American Association of Individual Investors got up to 75 percent
bulls and we got euphoric all over again. That's going to come.
INVESTORLINKS: How soon?
WOLANCHUK: At the top of the next third wave blast. There's
going to be a lot of people that will start chasing - if I'm right and
we've finished up a second wave correction in NASDAQ and it
starts to melt up. There are no sellers left because everybody's
bailed out of the stock market. People are going to be chasing
stocks. Not everybody is just going to stand around and call it a
bear market rally forever. When you chase stocks in a sold out
market, you see the net results. It goes absolutely hairy. Look at
what the NASDAQ did coming out of the 1998 hole. It was so
doom and gloom in the 1998 low. It went from 1200 and it
doubled in price vertically in a matter of weeks.
INVESTORLINKS: Which stocks should investors consider at this point?
WOLANCHUK: You just spread it around. Qualcomm (QCOM, Chart, Boards), in my view, is a
great situation, Some of the blue chips, like SBC Communications (SBC, Chart, Boards). It
wouldn't surprise me to see General Motors (GM, Chart, Boards) take off. Disney (DIS, Chart,
Boards) is another. Procter and Gamble (PG, Chart, Boards) is another great looking situation.
It got whacked and it came back nicely. It's consolidating. There's huge gaps just above the
market all the way up to $85/share. It should take out $118/share or $120/share. It's been there
before.
INVESTORLINKS: Should we expect optimism over the coming year?
WOLANCHUK: No. I don't want optimism. I want rising prices against the background of
pessimism. Something like we saw through 1988 and 1989.
INVESTORLINKS: Is that the bull market climbing the wall of worry?
WOLANCHUK: Of course that's what we want and that's what we're going to get. You know how
we're going to get the wall of worry? It goes up slow. It could be fast. There's two ways of
leaving the world behind. The market goes up super fast, catches everybody. Or the markets
go up slow with lots of correction. Everybody hates it all the way up because of that. It takes
nothing to move this DOW two hundred, three, four, five hundred points anymore. When we see
the epicenter of Primary Wave Three, there is going to be a thousand-point up day in the DOW.
It's coming.
INVESTORLINKS: Could the NASDAQ make a thousand-point gain in one day?
WOLANCHUK: Absolutely. You can't have the epicenter Primary Wave Three of Three to the
upside unless it is broad-based. All sectors going up in unison. That is a broad move. The last
time we saw a broad move like that was coming out of the 1982 low.
INVESTORLINKS: Any advice to investors who sold short this market or selling it short?
WOLANCHUK: I hope they stay short.
INVESTORLINKS: Thank you very much! |
