Continued.
Re: T.A. of the market- The big picture
Special request- Comparison to 1929
In '29 there was panic, and the tape was hours behind.
Not yet here.
There were organized supports by bankers.
There could have been an organized support for the market by the futures on 10/27/97 and on 9/1/98 but there's no proof for it.
The bailout of LTCM is nevertheless such action.
The pattern leading to the TOP in '98 is very similar to the one in '29, and the first leg down also bears stong resemblance, but the comparison stops after 9/1, when the panic didn't spread, and the crash phase was over when we crossed over the 13 dma.
An interesting comparison could be to try and equate the period since 9/1 to the one after the '29 bottom. There was a big 5 months rally after the 11/29 bottom, which, if scaled down, looks not unlike the trading since 9/1.
I have no data if there were any new all time highs made by few of the leading stocks in late November and December of '29, and the new highs made by YHOO and DELL sure look out of line with any comparison to past market crashes.
PART FIVE- OTHER CONSIDERATIONS
1. Outside interference
The decline from the July top down to the 9/1 bottom was enlivened by bad news all the way down. First there was the Humphry Hawkins testimony ("the market will go down... don't know when, but it will"), then the Zippergate, and an assortment of world wide collapses from Malaisia to Russia, with LatAm the icing on the cake that was thrown into the market's face.
Through the rise from the 9/1 bottom there were the bad news continued to pour from around the world, but dometic news had a positive spin- INTC's better then expected (ha ha) forecast (they will net $1.4B at the most, compared to $1.57B on Q397) and the expected rate cut- those had enough impact on the market to support over 11% gain from the low. Looks like the market starved for a correction up, and took whatever news it could find as good news.
Even the LTCM affair couldn't bring it down.
2. "Quality Stocks" high flyers
This is the most confusing part of the analysis.
While the monster multinationals - KO, PG, DD to name some (don't forget MMM) get hammered by the market, the NDX high flyers seem to be almost undisturbed by the market's decline.
A handful of stocks- A few drugs (JNJ, MRK), a few internets (CSCO, AOL, YHOO), two retailers and two deities -MSFT and DELL, seem to hold against all declines. The chart of DELL looks like nothing else.
CONCLUSIONS
1. The area between SPX 1066 and 1075 (OEX 519-523) shows enormous resistance. A break over 1075 (523) will force me to assume that we're going to check, if not break, the July high. Forget bear market for a while. The worst we can do is trade range bound.
2. A break to the downside from the rising wedge or whatever pattern was formed since 9/1 will be extremely harmfull. There are no significant supports below that line, currently at OEX 488.9 and rising 1.5 points a day, SPX 1014.5 and rising 4.1 points a day.
A break under this line will install fear in the hearts of many investors, proving that the "correction" isn't over.
3. My personal opinion is that the 520 level is too strong to overcome in the current conditions. Therefore the high reached on 9/23 and 9/24 at 516 and change would not be passed, because it will signify that the market is ready to seriously meddle with the 520 resistance. On 9/24 the 520 resistance and the upper parallel almost intersected (they did on 9/25) and the market came close enough and exhausted itself.
So my opinion is that we will break to the downside, and will see a lot more downside afterwards. This opinion gets some support from the EWT and from the patterns made by the market, but that's not enough to bet the farm on.
4. If I'm right, the following scenario is a possible ST outlook-
Today the OEX (currently at 512.9) should not exceed 516.5, and close flat to slightly up.
Tomorrow the market will be down 1% before the announcement, try to rally just before the announcement, and start dropping fast a few minutes after the announcement (unless it's a 0.5% cut, which is not likely).
On Wednesday we should check the line at 492 OEX, and break it on the same day or the next morning.
ATG |
