Posted by: hkp
Posted on: 20th Jun 2001 13:24:00
Message:
The Street - "99% of selling pressure should be taken out this week">
In the "glass is half-full" department, it's probably better that the Comp, particularly, didn't close at or extend its early highs. Instead of reviving speculators, today's action is likely to discourage investors. Perhaps it even augurs the "washout or capitulation day" that Steve Hochberg, co-editor of Elliott Wave Financial Forecast, expects in the coming days.
As reported previously, Hochberg has identified June 19-21 as a so-called Fibonacci turn window. To review, the windows are not designed to predict market direction, but points in time when the market's prevailing direction will subsequently reverse.
The market has been in a "pretty persistent downtrend" since the NYSE Composite topped on June 5, Hochberg said today. The turn window is "setting up really nicely. I'm looking for a low sometime this week. We might not shoot to the stars right out of the [turn], but 99% of the selling pressure should be out this week."
In a nutshell, Elliott Wave theory measures crowd psychology by "chronicling the progression of extreme optimism to pessimism and back," Hochberg explained.
One indicator giving him confidence that a trend change is at hand is the 10-day Arms Index, which measures the ratio of advancing stocks vs. declining by the ratio of up volume vs. down. (A ratio of a ratio, that is.)
Today, the Arms Index moved above 1.50, which "usually signals you're very close to a major buying opportunity," Hochberg said, echoing the comments of Don Hays of Hays Advisory (among others). "When they're this oversold, you have to take notice. It's pretty clear either you're going to get a solid, tradable low or you're going to get wiped out. We favor the former."
A washout session -- a big early decline followed by an intraday reversal -- could be the event that causes other sentiment gauges to flash similar indications. Hochberg conceded that many are "not at bell-ringing levels" currently, including the Investors Intelligence survey, the put/call ratio, Commitment of Traders report, and the Chicago Board Options Exchange Volatility Index.
Indeed, the VIX fell 3.5% today to 24.92, a relatively subdued level. The CBOE's equity put/call ratio rose to 0.73 from 0.64 yesterday, but also remains well below levels usually associated with excessive bearishness.
"Certainly there are things that worry me, but the Elliott Wave pattern is pretty clear right now and wouldn't change" unless the NYSE violates its March 22 low, Hochberg said. Should that occur, "just get out, because it means something very nasty is happening."
The Sentiment, Please
As Hochberg indicated, sentiment readings are mixed, even if they're heading in the right direction to signal a forthcoming rally.
Sentiment gauges are almost "never uniform," he acknowledged. This, I gather from the emails, is a source of frustration for many readers. Seems investors either have to get used to the crosscurrents, or find a sentiment indicator, or combination thereof, which has a good track record and gives them confidence to ignore the noise.
In the meantime, my unscientific, totally anecdotal sentiment indicator shows "everyone is too bullish" as the common refrain among market participants today. Only thing is, I couldn't find any who actually were upbeat.
"When we came in today, everything was screaming up and we're telling our customers 'short 'em here'," said Sam Ginzburg, managing director of equity trading at Gruntal.
Ginzburg professed to being "decidedly negative" here last week. At the time, he (I swear) predicted the Comp would soon likely trade below 2000 -- a call I regrettably omitted from last week's piece. Today, he forecast additional weakness in the index, suggesting it likely will now trade down to support at around 1940.
"I'd buy the dip but wouldn't buy the dip here," he said. "We've got a touch more downside, but then as a trader you can get long."
That some traders were eagerly buying this morning also troubled Edward Schuller, director of equity strategy at Sutro in San Francisco.
"You couldn't give Oracle away at $14, but at $17 on the opening everyone had to buy," he said. That some traders are still buying tech rallies rather than selling them means "there's still a lot of speculation" and only prolongs the Comp's bottoming process, he continued.
Schuller expressed amazement that anyone could have been surprised by the news after the bell from Tellabs (TLAB:Nasdaq - news - commentary), calling it just the latest evidence that any bottom in tech remains elusive, at best.
The strategist denied there was anything positive to read into the fact some investors did sell into today's rally, as did Doug Kass in RealMoney.com's Columnist Conversation.
So TaskMaster, what was that you were saying about taking solace?
P.S.
I called Schuller today to follow up after last night's offering, in which I was somewhat dismissive of his big-cap recommendations. Perhaps, I thought later, he mentioned those relatively unexciting names because his role at yesterday's luncheon was to give a broader market view, not to demonstrate unconventional thinking.
Today, Schuller said that was part of it but also expressed comfort in being cautious.
"I'd rather err on the side of being a little conservative and not have to worry about the mistakes," he said, suggesting small- and mid-cap companies might have trouble raising capital if the economy continues to sour. Because of that potential liquidity crunch, it's better to buy an index of small- and/or mid-cap stocks than individual names, he said.
eufinancial.com
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