Foxy Loxy lies in wait for panicky investors
Bill Carrigan
STAR COLUMNIST
Getting Technical
--------------------------------------------------------------------------------
Many of you may recall the Chicken Little nursery rhyme.
Chicken Little was in the woods when a seed fell on her tail. She met Henny Penny and said, ``The sky is falling. I saw it with my eyes. I heard it with my ears. Some of it fell on my tail.'' She met Turkey Lurkey, Ducky Lucky and Goosey Loosey. They ran to tell the king. They met Foxy Loxy. They ran into his den. And they did not come out again.
Last Thursday, I got an anxious phone call from an industry professional who I affectionately refer to as Chicken Little. It was about 2 p.m. and all the major North American indices were under water.
``Its official,'' she proclaimed, ``the Dow Jones Industrial Average is in bear territory. They just announced it on TV.'' I asked her to hear me out before telling this to Henny Penny or Turkey Lurkey.
The current bear market pronouncement for the Dow is flawed because, in reality, the Dow has been in a bear phase since January, 2000.
Followers of the reliable Dow Theory would also confirm a year-long bear in the Dow. We got a Dow Theory sell signal on Feb. 22, 2000, when the Dow Industrials and the Dow Transports closed below their prior lows in October, 1999.
In other words, the Dow bear is quite old and any weakness now could signal a mild form of capitulation. We need about a 15 per cent advance in both the Dow Industrials and the Transports to get a Dow Theory buy signal. Therefore, we need the Dow to close above 10,860 and the Transports to close above 3,020.
I also told Chicken Little to stop listening to TV and listen instead to the markets.
At the height of the Thursday midday gloom, all 10 of the most active Nasdaq stocks were trading up on the day. An hour later, all North American indices staged a big rally led by the technology related stocks.
What a perfect time for the introduction of an all-new Canadian technology index. The new Exchange Traded Fund is managed by Barclays Global Investors Canada Ltd. The new iUnit trades like a stock under the symbol (XIT-TSE) and offers investors a cheap, convenient, no-hassle way to participate in a possible new bull market in the technology sector.
The XIT is a basket of 27 TSE-listed technology stocks and is ideal for an investor who wants to participate in the sector without devoting extra time to the tricky job of stock picking.
Stock pickers can also try to outperform the XIT by managing the index. They can remove some of the weaker stocks and/or adjust their weighting in the index. I call this Enhanced Indexing.
There are many technical studies that I could apply to the 27 components of the XIT in order to enhance the performance of the index. This week, I will use relative strength to select some technology stocks that could outperform their peers during a potential rally in the technology sector.
I have selected two bellwether U.S. stocks to illustrate the mechanics of relative strength. Note the daily charts of Microsoft Corp. and eBay Inc. In both cases, the March, 2001, lows are above the December, 2000, lows. Compare this performance to 95 per cent of the listed technology stocks and the Nasdaq Composite that posted new 52-week lows over the same period.
Microsoft and eBay have, therefore, displayed greater strength, relative to their peers, since December, 2000. I then scanned components of the XIT for similar chart patterns and selected two candidates - Geac Computer Corp. (GAC-TSE) and Mitel Corp. (MLT-TSE) - that fit the bill.
Remember, this is a technical opinion. Get advice and use a stop loss just under the March, 2001, recovery low.
--------------------------------------------------------------------------------
Bill Carrigan is an independent stock-market analyst. His Getting Technical column appears Sundays. He can be reached at gettingtechnical.com on the Internet.
thestar.com |
