NEED FOR PERPSECTIVE…There are times when we have to stand back to get a better perspective on major trend direction. This is one of those times. Chart 1 shows this week's breakdown in the Dow under chart support near 10,300. (see Chart 1) [That's now overhead resistance]. We think the Dow will have to test the lows of the past year around 9700. The Dow will also be testing the rising trendline to the bottom right.
LONG-TERM TRENDLINE…We mentioned earlier in the week that the Dow could test its monthly up trendline drawn under its 1994-1998 lows. Chart 2 shows the trendline. Any decisive violation of the lows of the past two years - and the six-year up trendline --would have to be viewed as a major chart breakdown in the Dow. (see Chart 2) If that were to happen, there isn't much chart support until the 1998 lows near 7500.
MONTHLY MACD IS NEGATIVE…The monthly MACD lines have been in negative alignment for most of the past year. [The daily and weekly lines, which had been positive, turned down this week]. That puts all three-time dimensions in a bearish mode. The low levels of the monthly histogram lines also show the market at the weakest level in more than a decade. (see Chart 3) We think it's going to take some time to repair those downtrends.
TOO MANY BULLS…There are still too many bulls around. The % of bullish investment advisors is over 50%. It's closer to 30% at market bottoms. Two-thirds of NYSE stocks are still in uptrends. At market bottoms, the number is closer to 25%. Our short-term oscillators are oversold, which could give way to a Fed-inspired bounce next week. Our longer-term indicators argue against the start of new bull market.
JUST TURNING BEARISH?…One of our members chided us this morning for just now turning bearish. Actually, we turned bearish on the Nasdaq a year ago. This week's action showed, however, that even old economy stocks are starting to fall. That's why we've turned more bearish on the Dow, the NYSE, and the S&P 500 (and a little less bearish on the Nasdaq). A rereading of our analysis last April (April 21, 2000, to be exact) will also show that we predicted the economic downturn that's causing the market's current problems.
CASH IS KING…In every economic downturn, all stocks eventually fall - even defensive ones. We've been seeing that this week. At such times, cash is king. That doesn't mean everyone should go out and sell all their stocks. But it argues for higher cash positions at such times. Bond funds also continue to outperform stock funds |
