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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: C.K. Houston who wrote (41098)	6/27/1999 7:20:00 PM
From: William H Huebl	Read Replies (1) \| Respond to of 94695

Cheryl, Thanks for that tidbit and for posting it here... I am sure most of us will be watching it AND the conclusions... I believe it is about to happen again and very much worse than that!!! Bill

To: C.K. Houston who wrote (41098)	6/28/1999 12:12:00 AM
From: P.Prazeres	Read Replies (1) \| Respond to of 94695

June 27, 1999 Last week, the Dow Jones Industrial Average was down 303.00 points to a 10552.56 (-2.79%), the Nasdaq Composite was down 10.79 points to 2552.65 (-0.42%), the S&P 500 was down 27.53 at 1315.31 (-2.05%) and the Russell 2000 index of small cap stocks was down 1.94 to 443.11 (-0.44%). For the year, the Dow is up +14.93%, the Nasdaq up +16.42%, the S&P up +7.00% and the Russell 2000 up 5.01%. The StockMotions Newsletter Tracking Portfolio is up 27.47%. Another rocky week for the markets….and what happened to the volume??? Has anyone noticed that over the past month or so, volume on the NYSE and the Nasdaq has been rather anemic? There have only a handful of days where volume has surpassed its 50-day MA. Kind of makes you wonder whether some of the online brokers have been experiencing a decline in trading revenue? We certainly haven't heard of any system breakdowns lately. This Tuesday, the FOMC meets to declare that the Fed is going to raise the Fed funds rate by 0.25%. Is that going to be the catalyst for a relief rally (to new highs) as many are now expecting or is the market in for a reality check? How is the market going to interpret this rate hike and is it really necessary? I keep trying to come up with a scenario that would make any relief rally stick in the face of higher rates. Higher rates are generally bad for corporate profits. It raises the cost of capital for a corporation, which is directly translated to the bottom line. Higher rates raise the cost of interest payments on consumer's loans…possibly putting the brakes on aggregate amount of consumer spending. This decrease in demand supposedly puts the brakes on inflation. But where the heck is inflation? In the housing sector – YES (as someone who has been in the market to purchase one, it is most certainly a seller's market – I've even heard stories of houses being sold above the original asking prices – signs of a top in this market????) Wages – nah, the increases in wages are not out of the ordinary. Energy – Compared to six months ago, YES…but this component seems to have leveled off. Equity prices – ABSOLUTELY – but many of the super performers have been taken back some. Producer's prices – many companies are continually mentioning the pricing pressures experienced in their products….as mentioned before, the consumer is spending BUT price shopping before spending. Overall, there really isn't a great deal of inflation in the US economy right now. If rates are raised to protect an economy from inflation that isn't there, the end result is a nasty recession. Given that scenario, the Fed will get what they are wishing for – deflating equities. Of course, if the Fed is right in their assessment of inflation being around the corner, then the rate hikes will work – in hindsight, of course. But in the short term, the emergence of recessionary thoughts will still drag the market lower – possibly setting up for a great opportunity to buy…. I tend to think that after the rate hike, the market will run into some trouble….actually, looking at the internal indicators this weekend, its already there. Indicators – We Got Problems Now it is the Dow's turn to trade below its 50 day MA. It looks to be in the beginning stages of a flattening pattern. The % daily change in the 50 day MA was 0.23 and 0.17 on Thursday and Friday, respectively. What is the historical significance of this? With respect to the flattening 50 day MA….the Dow has had 10%+ corrections (from the cycle peak) anytime the Dow's 50 day MA flattens. The correction “finale” – or the climax of the selling – has occurred as soon as a few weeks to as much as three months after the 50 MA had flattened. The same comparisons can be made with respect to the moment the Dow trades below its 50-day MA. Again, this is a very negative development for the Dow…To convince yourself, make a point to check out the charts on the StockMotions.com website. The NYSE cumulative Advance/Decline line slipped a bit lower again this week. It now sits at 49,610. Comparing today's chart with that of the summer of 1987 is a humbling experience. Should the A/D line continue to deteriorate this week, another red flag will be raised (it seems to be ¾ of the way up the pole right now). Friday marked the 18th consecutive day that new lows on the NYSE have been above 40. (I am counting Friday, June 18, 1999 as a day with new lows above 40 even though there were only 33)…not enough of a break in the string of new lows. This is yet another red flag. Earnings estimates on the Dow have dropped again over the past four weeks. The consensus estimate for the Dow stocks for 1999 is now $488.20. Four weeks ago, it was $497.06. Earlier this year, this was one indicator that was actually a positive….estimates were continually rising. It is looking as though analysts were a bit too optimistic. And finally, the bond market couldn't hold its rally of the week before. Rising rates is one of the worst enemies of the market…MAKE NO MISTAKE ABOUT IT! Can anyone point me to any positives? I am at a lost to find any that is worth mentioning. What the heck does all this mean? The Dow MUST turn itself around and fast, in order to repair its technical damage. If it did, it could salvage its flat 50-day MA and it could eliminate the problems associated with trading below its 50 day MA. By Tuesday, we should have a pretty good idea of what's to come. The problem is that I have a bad feeling about where this is headed. It is entirely possible to experience a 500 point drop in the very near future. Many of the pieces of the recipe are in place. The Dow's high for the year is 11,130.67. A 10% drop from there puts the Dow at approximately 10,017.30. If the Dow were to revisit its 200 day MA, it would have to fall to 9479.60, only a 14.8% drop from the high. Paulo stockmotions.com