Unless this whole article by S&P is pure bull S___ , otherwise it's still pretty bullish for the general market :
Wednesday March 25, 1998 (2:45 pm EST)
Technical Indicators Still Pointing Upward
Standard & Poor's Investment Advisory Service
The technical pluses currently outweigh the negatives, but
cycle analysis suggests a market peak in June.
From a technical standpoint, the short-, intermediate- and
long-term trends are positive at this juncture. Despite the
outsized gains thus far in 1998 and in the three preceding
years, further upside potential appears to exist. Buying the dips
continues to be a profitable strategy, and until that changes, the
bull market will remain intact.
The S&P 500 index, after six months of essentially sideways
action, pushed to a record level in early February and then
climbed sharply over the past several weeks. The recent surge
makes the market look extended, or overbought, on a
short-term basis. But when a run-up occurs after a breakout to
all-time highs or after a long consolidation, it can be viewed as
a sign of strength and not a danger signal. Volume patterns
have been favorable, confirming that the advance isn't a trap
for the bulls. Heavy trading was seen during the breakout
period and on other strong days more recently. Down or flat
market sessions saw lighter volume, suggesting that the
supply/demand equation for stocks is positive. Another plus for
the short to intermediate term is the market's ability to shrug off
bad news. In baseball, it's three strikes and you're out, but
when three major technology stocks (Intel, Motorola and
Compaq) released negative forecasts in a short span, the
market paused briefly, then marched on to new highs. Positive
reactions to bad news, or climbing the proverbial wall of worry,
is quite bullish and adds to our confidence that this run is not
yet complete.
Cycle analysis is useful to determine where and when the
market might top out in the intermediate term. For the last
couple of years, successive intermediate-term peaks have
occurred on a fairly regular eight-month cycle. As the S&P 500
last peaked in October 1997, the next cycle top could come
sometime in June. To estimate where the "500" might top out,
we used a set of parallel trendlines to construct a channel that
contains the market's recent action. If the S&P 500 gets back
to the top of the channel in June, it would project an
intermediate target near 1160 (versus 1099 currently). These
eight-month cycles have been even more precise for Nasdaq
than for the S&P 500. The cycle top for Nasdaq would also
arrive in June, near the 2000 level; Nasdaq is now around
1790.
A continuing pillar for stocks is the strong bond market. With
yields declining on both a long- and intermediate-term basis
and yields relatively low historically, investors continue to look
at stocks as their best chance for big gains. Because yields
have fallen so much and present little competition for stocks,
money moves or rotates from one sector or industry to another,
but doesn't leave the stock market. Our current technical read
on long-term bonds is positive. The 30-year Treasury has been
in an intermediate-term bullish channel since April 1997.
Longer term, bonds have been in a bull market since 1981,
though subject to nasty intermediate-term corrections along the
way. Such long-lived trends in bonds are not unprecedented. A
bear market in bonds persisted from 1944 to 1981, or 37
years. As long as bonds remain in a bull market, it's hard to
argue against stocks. Interest-sensitive indexes have been
strong recently, confirming the strength in the bond market and
the stock market. Interest-sensitive indexes are often leading
indicators of the overall market and of interest rates
themselves, so with utilities and financial stock prices at
all-time highs, any topping out in stocks and bonds appears to
be months away.
Another worthwhile leading indicator for stocks is the NYSE
Advance/Decline line, a measure of market breadth. As
illustrated in the chart above, after topping out in early October,
the A/D line trended sideways until early February when it
broke to new highs. The breakout was another confirmation of
the S&P 500's move to new highs. The daily NYSE A/D line
has been in a bullish channel that began in late 1994. As long
as the market continues to exhibit good breadth, with many
stocks participating in the advance, the market averages
should continue to move higher.
Despite the market's recent strength, sentiment readings have
yet to signal any kind of bullish extremes. Among investment
advisors, for example, 48% are now bulls and 27.6% bears.
We worry when the bullish reading is 55% or more. Overall
Put/Call ratios are currently neutral, but there have been some
high readings from Index Put/Call ratios, which is bullish. Our
Call Premium/Put Premium indicator has spiked higher,
indicating that options players are more willing to pay higher
premiums for calls than puts. This sentiment indicator thus is
flashing caution, though it usually leads the market by about two
months.
With the positive technical indicators overwhelming the
negatives, we see higher stock prices over the next couple of
months, before a possible correction in June. We suspect that
weakness in the summer will last into September or October,
followed by another run during the strong seasonal period
between November and early 1999. For a long-term
perspective of the market, we used a monthly, semi-log chart of
the S&P 500 going back to 1970. Following the collapse in
1973 and 1974, the S&P 500 has remained in a bullish
channel ever since. The index touched the lower part of the
channel during the bear market of 1982 and then again in
1994. The upper part of the channel is drawn parallel to the
lower trendline using the market's peak in 1987 as a reference
point.
Making long-term projections are difficult, but if a major bear
market is avoided and the S&P 500 remains in this upward
channel for the rest of the decade, the top at the end of the
period would be about 1500. The low point would be near 850.
Thus, on this basis, the longer-term risk/reward ratio is fairly
favorable, given the market's strength over the last couple of
years. With the S&P 500 now around 1090, the upside
potential is about 38% for the next one and three quarters
years, and the downside risk is about 22%.
The technical pluses currently outweigh the negatives, but
cycle analysis suggests a market peak in June.
From a technical standpoint, the short-, intermediate- and
long-term trends are positive at this juncture. Despite the
outsized gains thus far in 1998 and in the three preceding
years, further upside potential appears to exist. Buying the dips
continues to be a profitable strategy, and until that changes, the
bull market will remain intact.
The S&P 500 index, after six months of essentially sideways
action, pushed to a record level in early February and then
climbed sharply over the past several weeks. The recent surge
makes the market look extended, or overbought, on a
short-term basis. But when a run-up occurs after a breakout to
all-time highs or after a long consolidation, it can be viewed as
a sign of strength and not a danger signal. Volume patterns
have been favorable, confirming that the advance isn't a trap
for the bulls. Heavy trading was seen during the breakout
period and on other strong days more recently. Down or flat
market sessions saw lighter volume, suggesting that the
supply/demand equation for stocks is positive. Another plus for
the short to intermediate term is the market's ability to shrug off
bad news. In baseball, it's three strikes and you're out, but
when three major technology stocks (Intel, Motorola and
Compaq) released negative forecasts in a short span, the
market paused briefly, then marched on to new highs. Positive
reactions to bad news, or climbing the proverbial wall of worry,
is quite bullish and adds to our confidence that this run is not
yet complete.
Cycle analysis is useful to determine where and when the
market might top out in the intermediate term. For the last
couple of years, successive intermediate-term peaks have
occurred on a fairly regular eight-month cycle. As the S&P 500
last peaked in October 1997, the next cycle top could come
sometime in June. To estimate where the "500" might top out,
we used a set of parallel trendlines to construct a channel that
contains the market's recent action. If the S&P 500 gets back
to the top of the channel in June, it would project an
intermediate target near 1160 (versus 1099 currently). These
eight-month cycles have been even more precise for Nasdaq
than for the S&P 500. The cycle top for Nasdaq would also
arrive in June, near the 2000 level; Nasdaq is now around
1790.
A continuing pillar for stocks is the strong bond market. With
yields declining on both a long- and intermediate-term basis
and yields relatively low historically, investors continue to look
at stocks as their best chance for big gains. Because yields
have fallen so much and present little competition for stocks,
money moves or rotates from one sector or industry to another,
but doesn't leave the stock market. Our current technical read
on long-term bonds is positive. The 30-year Treasury has been
in an intermediate-term bullish channel since April 1997.
Longer term, bonds have been in a bull market since 1981,
though subject to nasty intermediate-term corrections along the
way. Such long-lived trends in bonds are not unprecedented. A
bear market in bonds persisted from 1944 to 1981, or 37
years. As long as bonds remain in a bull market, it's hard to
argue against stocks. Interest-sensitive indexes have been
strong recently, confirming the strength in the bond market and
the stock market. Interest-sensitive indexes are often leading
indicators of the overall market and of interest rates
themselves, so with utilities and financial stock prices at
all-time highs, any topping out in stocks and bonds appears to
be months away.
Another worthwhile leading indicator for stocks is the NYSE
Advance/Decline line, a measure of market breadth. As
illustrated in the chart above, after topping out in early October,
the A/D line trended sideways until early February when it
broke to new highs. The breakout was another confirmation of
the S&P 500's move to new highs. The daily NYSE A/D line
has been in a bullish channel that began in late 1994. As long
as the market continues to exhibit good breadth, with many
stocks participating in the advance, the market averages
should continue to move higher.
Despite the market's recent strength, sentiment readings have
yet to signal any kind of bullish extremes. Among investment
advisors, for example, 48% are now bulls and 27.6% bears.
We worry when the bullish reading is 55% or more. Overall
Put/Call ratios are currently neutral, but there have been some
high readings from Index Put/Call ratios, which is bullish. Our
Call Premium/Put Premium indicator has spiked higher,
indicating that options players are more willing to pay higher
premiums for calls than puts. This sentiment indicator thus is
flashing caution, though it usually leads the market by about two
months.
With the positive technical indicators overwhelming the
negatives, we see higher stock prices over the next couple of
months, before a possible correction in June. We suspect that
weakness in the summer will last into September or October,
followed by another run during the strong seasonal period
between November and early 1999. For a long-term
perspective of the market, we used a monthly, semi-log chart of
the S&P 500 going back to 1970. Following the collapse in
1973 and 1974, the S&P 500 has remained in a bullish
channel ever since. The index touched the lower part of the
channel during the bear market of 1982 and then again in
1994. The upper part of the channel is drawn parallel to the
lower trendline using the market's peak in 1987 as a reference
point.
Making long-term projections are difficult, but if a major bear
market is avoided and the S&P 500 remains in this upward
channel for the rest of the decade, the top at the end of the
period would be about 1500. The low point would be near 850.
Thus, on this basis, the longer-term risk/reward ratio is fairly
favorable, given the market's strength over the last couple of
years. With the S&P 500 now around 1090, the upside
potential is about 38% for the next one and three quarters
years, and the downside risk is about 22%.
25-MAR-98 14:45:46 (01077490) Standard & Poor's Investment Advisory
Services, Inc.
personalwealth.com
Mang |
