From the PnF history book.
You all have heard Tommy and I refer to "June/July" of last year when we compare what we are seeing in today's market with what happened last year. While every year is not like the last, there are some striking resemblance's and things to keep in mind while we watch today's market. I have done a post on this before but I thought it well worth going through again. It provides an excellent picture of how the market operates behind the scenes, outside of the DOW and NASDAQ numbers and how it effects portfolio's. Education. You can't beat it. Damn it my parent were right, I hate that!
I'm going to use key stocks to illustrate some of this point. Remember this is not predicting and I use these stocks as examples, I am not suggesting where they may go this year. I'll use MSFT, INTC, CSCO, DELL and AOL. This covers the techs that rallied. (post splits yadda yadda).
Suggestion. Print this out and pull up the charts so you can have a visual whilst reading. This would be very helpful to you.
May-June 1998.
Short term indicators:
In May of 1998, the High Low index (hilo) had reversed down from its highs of above 90%, creating a double bottom at 66%. It reversed up briefly to 76% and then reversed down again, breaking a triple bottom at 65%. This then carried the High Low index down to 28% in June.
The 10 week Moving Average (10week) had already come down from the highs of 72%. It was in a column of X's in May to 50%, then reversing down to break another bottom until it reversed up again in June. That reversal took it to 36% and then it reversed down again to create another lower top and another double bottom break at 26%.
Long term indicators:
Optional Bullish Percent (BPOPTI) reversed down in May from 74%, a high for the indicator (and triple top). It continued down through June with no reversal up and settled at 40%.
The Over The Counter Bullish Percent (BPOTC) reversed up in May from 40% and continued through June to a high of 72% (through September actually). This was in complete opposition from the other indicators.
The NYSE Bullish Percent (BPNYSE) reversed down in May from a lower top set in March at 72% and continued down through June into September without reversing up.
Let's note that while all the indicators were down during May and June including the NYSE BP, the Over the counter Bullish Percent continued to new highs. This showed that any rally during this time was primarily due to Nasdaq techie kind of stocks, the rest were floating down stream.
The Dow in May and June of '98 did very well moving from 7250 to 7850. The NASDAQ also did very well moving from 1250 to 1450 during that time.
Stock selections for May and June '98
MSFT: Consolidated creating a triangle in the price range of 87
CSCO: Stayed witting the 50 dollar range.
INTC: Consolidated around the 75 dollar range
DELL: Consolidated around the 20 dollar range
AOL: Consolidated around the 20 dollar range.
Not much movement in the above stocks. (I'm not going searching for those that moved the OTC during this time.)
So what did we have in May in June? We had our short term indicators and long term indicators with the exception of the OTC, in a decline but the Dow and the NASDAQ were making new highs or working their way to new highs. This is very similar to today's market. Our indicators are all negative (except the High Low at this writing) but the Dow and the NASDAQ are making huge moves and are at all time highs. Keep this in mind as we continue.
July-September 1998
Short term indicators:
The High Low Index (hilo) reversed up in June/July from 28% to 64%. It then reversed down and continued through September to 6%.
The 10 week Moving average (10week) moved back up to 52% from 26% ( a lot of the move did occur in June) in July reversing down in August to 16%. It briefly reversed up in August to 22% and then declined to 10% in September.
Long term indicators:
The Optional Bullish Percent (BPOPTI) reversed up briefly in July from 40% to 50% and then reversed down through the end of August to 10%.
The Over the Counter Bullish Percent (BPOTC) fell in June to 40% and then reversed up briefly in July to 46%. It then reversed down breaking a triple bottom falling to 10% by September.
The NYSE Bullish Percent (BPNYSE) never reversed up from May and fell all the way to 16% in September.
The Dow Jones rallied to 8250 in July. It reversed on its chart and came down to a strong support area of 7600 in August. The Dow then moved up in down making the last stab at the high in October only to reverse down again at 8150. One more lower top later and several bottom breaks, and it collapsed to 7000.
The Nasdaq rallied heavily in June through October to 2020 from 1450. In October it reversed down breaking several bottoms and landing at 1475.
Stock selections June through October.
MSFT jumped to a high of 118 in July. Reversed from there and ended up at 95 in September. It then had a small rally moving to 114 and then reversed down to 88 in October.
CSCO rallied to a high of 80 by August but then breaking support later that month. Moved to a low of 55 and then fiddled around in September making a stab at the old high at 68. It then reversed down breaking all support and landed at 42 in October.
INTC rallied up to 97 in August. It then reversed, breaking support and landed at 70 in September.
DELL rallied to 32 in August and then reversed down to 24. It rallied again to 34 in September and when it reversed in October it fell back to 21.
AOL hit a high of 35 in July and reversed through August to 25. In September it came down to 17.5.
Wrap up.
How does this compare with current market action? Again, things are never exactly the same from one year to next but the glaring similarity here is the Dow and Nasdaq making new highs and huge gains while the PnF indicators still lag. Also this year we have the sell singnal in the Dow Jones 20 bond average which we did not have last year. This is a negative for the market
Noteworthy is the similarity at lower levels. Last year the NYSE BP reversed down from a higher level. This year the NYSE BP didn't make it back up to 70% only to 60% and then another lower top at 58%. For whatever reason, less and less stocks are making new buy signals and the NYSE BP is looking weaker. At the same time the Dow is making new highs. This tells you less and less stocks are participating in any rallies and this is worrisome.
If the 10 week turns positive but the longer term indicators do not while the Dow and Nasdaq continue to make highs you have to be very cautious. This creates from what we have seen a very precarious position in the market.
I hope you can see by this why we stress stop points and not chasing stocks with these current conditions. Obviously, there are excellent trade opportunities but do not lose sight of the longer picture. The Dow very easily can make it to 10,000 or more but without the sponsorship of the NYSE BP, it can be dangerous and quite short lived.
Check the charts.
Jan I am |
