September 26, 1999
Last week, the Dow Jones Industrial Average was down 524.30 points to 10,279.33 (-4.85%), the Nasdaq Composite was down 129.21 points to 2740.41 (-4.50%), the S&P 500 was down 58.06 to 1277.36 (-4.35%) and the Russell 2000 index of small cap stocks was down 17.36 to 417.09 (-4.00%).
For the year, the Dow is up +11.96%, the Nasdaq up +24.98%, the S&P up +3.92% and the Russell 2000 down ?1.15%. The StockMotions Newsletter Tracking Portfolio is up 41.41% for the year. [the portfolio holds a 70.65% cash position]. To automatically receive portfolio updates before they happen, you may sign up at:
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When we last met, I spent a few moments on the heavy hitters of the Nasdaq 100. Specifically mentioning that " it's not that I don't like them, it is that these issues are looking a bit top heavy".
Well, for certain, some of the air has been let out since then...and most internal indicators are reflecting the damage that occurred over the past week. Let's look at a few.
The NYSE Cumulative A/D Line
On Friday, this indicator finished at 32,682, a level last seen on September 11, 1996 when it closed at 32,595 while in a sustained uptrend. Also keep in mind that this indicator peaked at 81,712 on April 3, 1998! In other words, the ?bear market? in the NYSE Cumulative A/D line has now lasted for 372 market days. It has fallen 49,030 units from its peak.
Given all these stats, I was curious how they compared with recent history. [Before going any further, there is an accompanying chart with the following analysis. It is on the website in the Indicator charts section. The chart is called NYSE Cumulative A/D (1984-today)].
Since the beginning of 1985, there have been three other "corrections" in this indicator. The first started on April 21, 1986 at a level of 29,078. This correction lasted 412 market days, culminating on December 4, 1987 at a level of 2,449 - a net drop of 26,629 units.
The next correction started on August 8, 1989 at a level of 20,156 (notice that it was below the peak of April 21, 1986). This correction lasted 312 market days, culminating on October 31, 1990 at a level of -6661 - a net drop of 26,817 units.
The final correction stated on February 2, 1994 at a level of 30,414. This correction lasted 216 market days, culminating on December 12, 1994 at a level of 3,180 - a net drop of 27,234.
The low that was put in on December 12, 1994 was the beginning of an unprecedented upward movement in the US stock market - one that lasted 836 market days and that saw the NYSE Cum A/D line advance an amazing 78,532 units. Given this spectacularly positive market condition, it is of no surprise that the subsequent unwinding has brought about a greater net drop than the recent corrections.
Which brings us to today...looking at the chart, one can make the argument that in the 25,000 to 30,000 area there could be some significant support for this indicator. The current correction, should it persist, will surpass the 412-day length during Thanksgiving week of this year...which is in the time of the year that the past three corrections have culminated. Of course, the main question is whether or not the correction ends at 30,000 or 25,000 or somewhere in between. If by any chance support isn't found at these levels, the next point is at zero...which would certainly test the nerves of all the "buy the dipsters" and long term holders in the market.
The Moving Averages
On Friday, the Dow finished just 20 points above its 200-day MA of 10,258.40. The index actually traded below that level during the day, but true to the strength of that indicator, it managed to close above it...The Nasdaq, however is still sitting above its 50 day MA.
The Dow's 50 day MA started sloping downward on September 13th and its strength indicator was at -1.66 on Friday - a true sign of deterioration. Given the recent overshooting on the Nasdaq's big tech names, it wouldn't surprise me to see the Nasdaq join the rest of the averages by visiting its 200-day MA (which currently stands at 2503.80).
CBOE Volatility Index (VIX)
Simply put, anytime this indicator approaches 30 and closes above 30, significant trouble is usually around the corner. On Thursday, it closed at 30.28. Friday it spent most of the day above 30.00 (hitting an intraday high of 32.33). It closed Friday at 29.54 - leaving a little bit of breathing room. If this indicator can get back to the mid 20's, then we get back to "safer" market conditions. However, if during the upcoming week, the VIX makes a habit of closing above 30.00, then further volatile downside will more than likely occur.
What the heck does all this mean?
It is quite possible that we are in the finishing stages of the correction that began back in April of 1998 - which makes me think that over the next couple of months, the neglected stocks that have been left behind might present themselves as spectacular buys - of course, those that have the fundamentals are the ones to buy - there are those that deserve to be in the gutter...don't confuse the two. However, in the shorter term, I don't think we have seen a sufficient enough correction to signal the "all's clear". Stay tuned!
The Major Moving Averages
For those who are interested in the moving average levels, here they are. As of the close on Friday, September 24, 1999: The Dow?' 200 day MA is at 10258.40, its 50 day MA is 10899.70. The 200-day MA is in an uptrend and the 50-day MA is declining. The Nasdaq 200day MA is 2503.80, and its 50-day MA is 2719.10. The 200-day MA is in an up-trend, the 50 day MA turned downward on Thursday, September 23, 1999. If any reader would like to see the charts that indicated the relative movement of the 50 day MAs on the Dow and the Nasdaq, please click on
stockmotions.com for the Dow and
stockmotions.com for the Nasdaq.
Paulo
StockMotions.com
Copyright: 1999 StockMotions.com |
