Too soon to say market recovering
By Adam Shell, USA TODAY
URL:http://www.usatoday.com/money/markets/us/2002-11-28-realdeal_x.htm
NEW YORK — Stocks have bounced strongly from their October lows, but experts who gauge the market's health by studying charts say it's too soon to call this anything more than a big rally in a bear market.
Technical analysts are the prognosticators who pay little heed to fundamentals such as corporate profits and price-to-earnings ratios, instead focusing on stock chart formations, long-term trendlines and trading volume. They say stocks must climb higher before they can declare the bear market is over.
"Until we get further confirmation, all I can say is we're in a bear market rally," says Richard Suttmeier, strategist at Joseph Stevens.
Determining whether the rally, which has pushed all three major U.S. stock indexes to gains of 20% or more from multiyear lows on Oct. 9, is the start of a lasting long-term uptrend is crucial. The reason: It gives investors a sense of whether it is safe to commit fresh cash to stocks.
The rally is getting hard to ignore. The Nasdaq has soared 34% since its October trough, a powerful run fueled by investors who are again willing to take risks and data pointing to an economic recovery. The Dow Jones industrials, up 23%, and the Standard & Poor's 500, up 21%, have also fared quite well.
Still, despite the mammoth move, charts say a long-term downtrend is in place. What would change that?
The Nasdaq, Dow and S&P must all climb above their 200-day moving averages, says Gibbons Burke, editor of MarketHistory.com. Short-term moves provide few clues to the market's overall health. But an index rising above its average price the past 200 trading days signals an uptrend, analysts say
Wednesday, the Nasdaq surged 3% to 1488, just 9 points from breaching its 200-day average of 1497. That's a huge improvement from Oct. 9, when it closed 486 points below its 200-day average.
But to confirm that the trend has really changed, and that the move is broad-based, all three major indexes must exceed their 200-day average, Suttmeier says. The Dow, up 255 points to 8932 Wednesday — its biggest gain ever the day before Thanksgiving — is 257 points below its 200-day moving average, 9189.
A breakout for the S&P 500 — the barometer for the broader market — above its August high of 963. It closed Wednesday at 939.
Overcoming "resistance" levels. As stocks rebound and get closer to levels where investors had bought them, it's not uncommon for people to breathe a sigh of relief and get out without suffering losses. "People are so excited to get back to even, that they will sell into the rally," says Douglas Lomma, senior analyst at Technimentals Research.
The problem: A lot of such resistance occurs at the 200-day moving average.
Still, even chart-watchers agree that if all those criteria are met, it will be up to a recovery in corporate earnings to ensure that the rally holds for good. "Now it's up to the fundamentals," Suttmeier says. |
