By L3_Aka_L3 on Saturday, March 17, 2001 - 02:21 pm: Edit
Weekly and 3 line charts updated. ( marketswing.com then click on L3's Charts in the left frame)
Charts are still mixed but I am taking this as a good thing for the long term holders out there. If I have a chart on it, take a look at what you are still holding. Some things are going much lower and many that some think will snap back or think can't decline any further, take a look at some of the stocks like RFMD, and though I don't have it here any more, CMGI etc that have gone from the hundreds to single digits. You really need to take the emotion out of it and ask yourself what their real futures are.
I panned back a bit on the weeklies and 3 line charts sacrificing some detail but giving a longer term picture of where we have been and where we may end up.
I say the picture is mixed purely due to index weightings, past performances and investor psychology. Some charts like WMT are showing serious danger signs as it has formed a diamond much like that of the DOW. This formation is low probably or unknown probability since it is so very very rare but the downside implications are huge and warrant grave caution. Remember that we ARE in a bear market and those bearish formations that used to not happen in the bull now work more often.
On the bullish side, there are a LOT of stocks that are putting in bases, not making new lows despite the indexes dropping or at least have good looking weekly formations. As Don pointed out, we are deeply over sold and we are both getting readings that say we almost HAVE to bounce. I have weekly class one over sold readings on the NDX, NASDAQ, SPX, OEX etc. My charts go back to 1984 and I have NEVER EVER EVER had a class one over sold before. I only regret that I never got off my lazy rear and loaded the data going back to the 60s that I have in an excel program so I could see what happened to my signals back then.
Anyway, my point is we are getting very extreme readings now. Looking at the actual economy, it isn't that bad "yet". I read a few articles that were supposed to be supporting the bear case last night and the opening paragraph in one was pointing out how that as of it's writing last February, the economy was not how it was in the beginning of the bull. It pointed out that back then the unemployment rate was 4.5%, GDP growth was 2.5% and stocks were being shunned after a bear market.
Looking at where we are right now, we are at 4.2% unemployment and climbing with the target rate being 4.5%, GDP growth is flattening but the target rate is 2.5% with rate cuts coming and 1 point that has already been done and should be seen hitting the street in a few months around June/July. We aren't going to have a 95-2000 economy again anytime soon but we aren't in a depression yet either and not too many see this coming including the bears.
Looking on the reference thread for patterns after rate cuts, we historically make a lower low 3 months after the first rate cut, it is March, 3 months after the first January rate cut and we are lower. One year later the market is up in every instance of 3 cuts except 1929. Ask yourself, is this 1929? I don't think so despite the dangers of Japan etc. So where does that lead us.
Looking at that repeating pattern I spoke of earlier in the week, it implies that we should try and find a base somewhere, have a mini rally, then drop sharply to shake out the last of the dipsters and then rally strongly to about a 50% fib level of the last decline. I am using the repeating pattern that can be seen it T, GM, EK, CPWR, KEA, PG, DD on and on. Basically any stock that fell early on and is running ahead of the rest of the market. The important part of this is to not be greedy, if you are holding longs etc, don't try to hold out for even but recognize this pattern. After the bounce that I figure might get us to 2250 NDX, it should stall for a week or so then it will tank again.
From there assuming the pattern holds, we should bottom out finally around 1100 NDX and trade in a tight range for the next 6 months or so. Since I have a MAJOR cycle turn in late August/Early September, I am assuming that we should get the start of an uptrend around that time frame. That will be about 7 months after the first rate cut and hopefully we will see some signs that the bear is weakening by then.
My point in all this is we are nearing a down target time frame wise here and should get a bounce but the first bounce may not hold, in fact it likely won't. The drop after that will be able to be bought for a strong fib bounce. That bounce will be the chance to go heavy short but not too quickly since the fib bounce tended to hold for anywhere between a week and 6 weeks. Those playing puts should make sure that you pick far out strikes, LEAP puts etc at least 3 months out. I expect a minor bounce this week then the minor cycle turn I have for 26 March should be the start of the other decline. If we fall on the FOMC news, then I obviously would say the 26 March turn will prove to be the low for the larger fib rally.
I think we are nearing the low points for this bear but it all depends on how you look at it. A drop to the 1500 or even the NDX 1100 area is still a sizable drop point wise. However I feel most of this drop will come from the last few holdouts that are refusing to drop thus far and there weightings in the index. MU, AMAT, QCOM, MSFT, FLEX have not fallen much yet and in the case of MSFT and QCOM, they make up 8% and 4% of the NDX weighting so a drop in them will move the index down hard. On the other hand, stocks like EMC, CSCO, SUNW etc have probably completed most of their declines already. I would not try to catch the falling knife too aggressively and would pick target entries and have close stops and STICK to them. Once we start the bounce then you can tag along with trailing stops. Once we get that bounce out of the way, I would be an aggressive shorter.
The DOW looks worse than the NASDAQ here so I would not be playing too many long there. Stocks like UTX are finally falling out of their long term forks and IBM is only starting to show signs of weakness.
I see a lot of people saying the PE of ABC company is already low, how low can it go. Remember that earnings are declining faster than the stock prices which will make those PE ratios higher down the road. I get a kick that they added NVLS to the NDX and yet I expect the Semis and semi equips to get cut off at the knees a few months down the road. The semis have a crystal clear 3 year cycle and they are only partially through the declining phase. Dan Niles was more bearish than them last weekend than I have ever seen him as I said last week. I wouldn't touch them.
I will be buying in my kid's account here soon with a targeted entry of 36 1/2 in the QQQ ( playing the 37 target with an intra-day overshoot). As a reminder for the new people here, I trade their account with a very long term outlook since they are very young and have 17 years to wait. I also take profits quickly when they have them and the market looks shaky. Since I am expecting a head fake bounce and then lower levels, if they get their entry and get a couple points of profit, I will likely have a trailing stop loss only a point and a half behind the current price that will only be moved up and not down. The second decline assuming there is one will be the one I let ride longer but one play at a time.
In my own account I am pretty much done short term trading since I blew my speculatation high risk money Friday. I will likely add a small amount to my longer term stuff depending on how things look this week after the FOMC meeting. I will be closing all those longs on the bounce and switching to short later if everything goes as I see it.
One last thing, I see Gold is being discussed a lot lately. I started digging a bit deeper into it after some prodding. I looked at the Gold chart form the early 70s to the present. Fortunately I had just finished looking at a Nikkei ( Japanese market) chart long term also. The two are almost identical. I know one is a hard asset and the other is a manic market but look at the charts. I don't see Gold taking off any time soon. BWDIK
Enough ranting here. I have yard work to do and then the wife wants to go to the lawn and garden expo to get more ideas on how to keep me busy and off this computer. You haven't lived until you drive fence T bars into the ground then drive a 9' grounding rod into Idaho rocky ground. I'll be glad to go back to work so I can relax. -ggggg-
Good Luck,
Lee |
