I don't see a double top yet, but if the rally continues we will see one within the next few sessions. Looking back at the July correction, I saw a few up sessions following the downturn, then about five sessions later another downturn. Also Dec. '95 showed a small dip within the first week, followed by a trading range for several more sessions and a small correction before the Fed lowered interest rates, which started the steepest climb I've seen on the OEX. It lasted a few weeks and then took on a more reasonable angle of ascent.
Some analysts think that Friday's action took the air out of the speculative bubble that Greenspan alluded to. Yeah, right. We saw over 600 million shares traded one day during the July correction. I think I remember only a little over 500 million on Friday. CNBC and the rest of the media always marches out the analysts that tell everyone not to worry, just keep buying on the dips. The fact that the market resumed today like nothing happened Friday is the worrisome part. If the individual investor starts taking their profits and reinvests in more conservative money market funds, T-bills, bonds, etc, then the money inflows to equities will start drying up.
TSV (Time Segmented Volume) measures the amount of money flowing in or out of a particular stock. It has been negative on the OEX for the past few sessions. I do think we'll stay in a trading range until something definite shows up. It will take objective numbers, like the CPI, employment figures, housing starts, factory orders. Or the killer of all bulls- weak earnings- to really send the message home to the market.
I've always bought calls, covered calls and sold puts against my strongest equities. This month is the first time I've been heavy into puts against the market. Once I see a strong correction I'll be buying calls again. I just think we need at least a 5-10% correction before we can assume a march to DOW 7000 is sustainable. |
