Bert Dohmen:
Bert Dohmen's Weekly Hotline
March 19, 1999
The DJI 10,000 level continues to be a significant obstacle. Several times
during the week the national media had to put the balloons and champagne
bottles back into the closet. Late Thursday the DJI did manage to move above
10,000 for the second time, but at the close it was still about 3 points shy
of that psychological barrier. Everyone assumed that it would be a cinch to
close above that level the next day. On Friday, the market quickly spurted
upward above 10,000, but by the close, the DJI had posted a loss of 94
points, closing at 9903.
Friday was a so-called triple witching day, in which options on stocks,
indices, and the futures expired. In the middle of the day, when the market
looked fine, Morgan Stanley downgraded the outlook for IBM. IBM quickly
plunged more than 9 points. Merrill Lynch rebutted the bearish opinions with
bullish arguments. I don't want to accuse, but the IBM downgrade was very
peculiar in it's timing. Maybe the SEC should check what positions the firm
had in expiring index options today.
On a technical basis, today's reversal is cause for some concern. It occurred
on very heavy volume. However, because it was not preceded by an extended
period of high volume days, I conclude that this is not the final top. It is
much more likely that we'll see a short period of weakness to be followed by
another upmove. At an important and final top, the specialists on the floor
of the exchange reverse their positions from long to short. They can only do
that on high volume, and it takes more than one day to complete the job.
Therefore, it's important that sufficient enthusiasm is created first so that
the specialists have buying demand from the public against which to sell
short.
So we have a situation where we could see a couple of days of weakness in the
market, to be followed by another brief upmove into month end. The strength
of many internet stocks today suggests that the market is not yet ready to
tumble. Today's pullback, and further weakness early next week should
generate a lot of renewed short-selling and put option buying,. This would
provide the fuel for the next rally, although it may be short. The DJI may
not close substantially above the 10,000 level for some time. It's time to
start raising cash.
In conclusion, the market is still in trading range which started in January.
Although the DJI has made consecutive new highs, that's only 30 stocks. Other
major indices have made no headway, and have even declined. The broad indices,
such as the Value Line, and small cap indices look ghastly. |
