""I stated that a little pause/pullback would actually be preferable. A period of lateral action would
occur because of the speed of the run off the late-March bottom, up and thru the supply area that began
at 10300 up to 11000. I also pointed out a similar period in 3/99 when the DJI stalled for some three
weeks just beneath 10000 after its huge run from 7400 off its 10/98 bear market. The similarities are that
then and now belief was that the rally was over and the bear market would resume. 10000 was finally
overcome, and the DJI ran to 11200. The ingredients to watch during such a lateral period are as
follows:
1. Volume has to be low, indicating no real sellers at work – more a case of a buyers’ strike. We have
seen three days below 1 billion shares during the past seven days, including the lowest day of the
year. The rest have been barely above 1 billion.
2. The A-D index has to show good signs of relative strength. This indicator has moved over its early-March
peak, which coincided with just below 11000 – a clear sign of relative strength. Plus 736
yesterday vs a 4-point loss.
3. Sentiment must remain negative, indicating skepticism that, in this case, 11000 is a top. The past six
days the P-C ratio has averaged 164%, and that includes one reading of 96% – without that reading,
it would have averaged 176%, which would be very bullish, given a lateral market. The 164% figure
is still a really good number.
4. After a huge run from 9100-11000, all the DJI has done is trade between 10700-11000 – as a matter
of fact, the past seven days, the range has been confined between 10800-11000. Not much of a
pullback, is it? ""
From RJF.... |
