Analysis - Thursday, March 8, 2001 8 pm
At the highs today the Dow was up 129 points. We closed
up 128 points. The Nasdaq took another beating, closing down
55 points.
Today was a very good day for the Dow, but not an
especially good day for the rest of the market. The Dow Jones
closed up 1.2% today. However the broader indices were
nowhere near as strong as the Dow. For instance, the NYSE cash
index closed up only 0.6%, half as much as the Dow. The S&P
500 closed up only 0.2%. The Nasdaq closed down 2.5%.
Despite the fact that the broader indices were not as
strong as the Dow today, we remain overall bullish for the
coming weeks and months. One of the strongest reasons for our
overall bullish position on the market comes from the Daily
Advance/Decline Line. This is one of the most fundamental
of all technical indicators. However it surprises us how many
of this country's best market timers have chosen to ignore
the message of this indicator to this point. Today the best
discussion we have ever found on the A/D Line comes from Joe
Granville's book, "Granville's New Strategy of Daily Stock
Market Timing." In that book Granville states: "Of all the
indicators discussed in this book, I consider the advance-
decline line to be the single most important technical tool
The purpose of the advance-decline line is to inform you in
the broadest sense whether the market as a whole is actually
gaining or losing strength." Granville goes on to state:
"More often than not, a major change in the direction of
the market should show up here before it will in any of
the other indicators."
On February 13 the Advance/Decline Line reached its
highest level of the last 12 months. The Advance/Decline
Line then turned down. Today the Advance/Decline Line
reached a new high for the last 12 months. Now, no
one can argue that the Nasdaq is not in a Bear Market
at this time. Investor's emotions and the subsequent
reactions in stock prices are like a pendulum, swinging
from one extreme to the other before changing direction. At
the highs in the Nasdaq in March of last year investors could
not get enough of the Nasdaq stocks, because they were in fact
soaring to new highs after new highs. Prices at that time
were way out of line with reality. Now the pendulem has swung
in the opposite direction, and is very near an extreme. We are
not saying we expect the Nasdaq to reach new all-time highs
this year. However, we believe a rally is coming soon in the
Nasdaq which will surprise most analysts and investors. Could
the Nasdaq fall to new lows over the next few days first?
Yes, it could. But this would not alter our outlook for the
Nasdaq for the balance of this year.
For Friday, the 3-Day Chart on the Dow will turn down on
any decline below 10711 on a print basis and 10625 intraday.
Once again the intraday number is the more important of the
two. If that occurs we should see some further pullback or
correction into early next week. The first sign of potential
trouble very short term would be any decline below 10749 on a
print basis in the Dow.
For now we want you to continue holding current
positions, and do no new buying until we give you a signal |
