Excerpt from Barrons:
August 3, 1998
Double Whammy
That, a technician asserts, is what the stock market is
facing
By Jacqueline Doherty
Danger Zone
Want a good scare? Don't bother seeing Armageddon or reading a Stephen
King tome. Just talk to Peter Eliades. The technical analyst, who publishes the
Stockmarket Cycles newsletter in Santa Rosa, California, has identified two
patterns that may signal that stocks are about to tumble and which, he says, are
consistent with the warning of a 1998 downturn, possibly in the summer, that he
issued on these pages three months ago.
True, many consider technical analysis akin to witchcraft because it involves no
fundamental research. Instead, technicians use charts of the market's historical
movements and look for patterns to predict its future direction. But those who
take technical analysis seriously would certainly like to know that Eliades' charts
are calling for a fall.
The signals come from two indicators: a "double top" pattern and the Sign of the
Bear. Independently, he warns, these two are ominous. Together, they give him
the chills.
The last time a double top and the Sign of the Bear occurred simultaneously was
in 1966. Back then, the Sign of the Bear flashed its warning on January 25. There
was also a double top formation in January and again on February 9, when the
Dow hit an intraday high of 1001.
From its peak in 1966, the Dow fell 27%, to
735, by October 10. The market didn't
break through 1000 again until 1973.
Today, a 27% decline would push the Dow
down by more than 2,400 points.
Scared yet? Eliades laid out his methods for
spotting the Sign of the Bear in Barron's
May 4 issue. The Sign came out of
hibernation to flash a warning signal on
April 6. It sent a second warning July 20.
To Eliades, a Sign can occur whenever there are 21 or more consecutive trading
days during which the market doesn't rise or fall much, but instead "churns"
sideways. Such churning, he maintains, indicates a top if it is followed by two or
three days during which the market falls sharply. |
