Dan Ascanti says this rally is a BEAR TRAP
Was Tuesday's Dramatic Rally A "Bear Trap?"
Today's Market Commentary
September 2, 1998 00:36 GMT -- Tuesday's U.S. stock market rebound now has something in common
with the mini-crash of October 1997. Last October and again this week, the market collapsed over 500 Dow
points, then rebounded over 250 points on 1.2 billion shares the following day. Last October, we immediately
declared the day of the low in the market on October 28 a major market bottom, advising clients to return to stock
market investments for a move above Dow 9000 (reference our back issues of our monthly market letter, The
Global Market Strategist, from last fall, as well as our two Forecast '98 reports) before the 7000 level is seen
again. We later called for a significant market top for the week of July 20, 1998 (reference recent issues, and an
end to the bull market of the 1990s at Dow 9308 and at 1205 in the S&P 500 Index (+/- 1 1/2% margin for
error). That top and subsequent collapse into Tuesday's low 1800 Dow points off record highs occurred exactly
on schedule.
But, can we say the same thing after Tuesday's nearly identical rebound--again on 1.2 billion shares? The
answer, unfortunately, is no. While we savor the kind of market volatility we've been seeing for the benefit of
our futures clients trading at Ascani Brokerage Services, Inc., and for our daily Telephone/Web Update and Key
Markets services for short-term traders in U.S. and global futures and index options (the S&P market moved
145.60 points, or $36,400 per contract, in our favor during the time our most recent trading recommendation
was on--see our Daily Web Update for short term tradersfor details & NFA Hypothetical Disclaimer), for
investors, the autumn of 1998 will be much different than the autumn of 1997. This week's rebound, then, is
likely to prove to be a bear trap--the kind of rally that looks good on the surface but just squeezes the bears out
of short positions before the market falls yet again.
If we are wrong about this, our trading and investing models are designed to "pull us back in" to the market
despite any opinion. However, for reasons we've been giving in our research, and for what very likely lies
ahead for the global marketplace until the very regular 4-year cycle bottoms later this fall, the market is likely to
fall again after the present rebound. The market, then, will have a lot more proving to do before a reallocation
into stocks is warranted this far ahead of that 4-year cycle and this far above long-term support levels at Dow
6686 and 6971. The 4-year cycle is due to bottom nominally in December 1998. While it has come in early in the
past, a significant low before October is unlikely, and our 19-week cycle is still pointing down until the third to
fourth week of September. As we progress through September, in fact, the market is again likely to have more
mini-collapses, panics, and washouts, with the mid-September period very high risk for this type of market
action. |
