October 3, 1999
Last week, the Dow Jones Industrial Average was down 6.33 points to 10,273.00 (-0.06%), the Nasdaq Composite was down 3.56 points to 2736.85 (-0.13%), the S&P 500 was up 5.45 to 1282.81 (+0.43%) and the Russell 2000 index of small cap stocks was up 6.44 to 423.53 (+1.54%).
For the year, the Dow is up +11.89%, the Nasdaq up +24.82%, the S&P up +4.36% and the Russell 2000 up +0.37%. The StockMotions Newsletter Tracking Portfolio is up 43.18% for the year. [the portfolio holds a 69.77% cash position; its major strength this past week was the +3 point move in AMSC]. To automatically receive portfolio updates before they happen, you may sign up at:
stockmotions.com .
During the week, some of the neglected stocks were slightly rediscovered. The 1.54% gain in the Russell 2000 reflects this. Last week, I mentioned the possibility of the end of the "bear market" in the NYSE Cumulative A/D Line. During the week, this indicator finished basically flat from where it stood the previous Friday.
The Dow closed below its 200 day moving average this past Wednesday and Friday. How significant is this? It is the first time since last October 29th and 30th that it has done so more than once in a five-day stretch. Additionally, October 30th,1998 marked the end of a 46 market day period that had the Dow closing below its 200 day MA - that 46 market day period started on August 26, 1998. Two weeks before that, the Dow closed below its 200 day MA three times in a five-day stretch (August 11, 13 and 14, 1998). From August 17th to the 25th, the Dow tread slightly above the 200 day MA . The action in the Dow over this next week will more than likely give some insight as to whether more of a washout is to come.
Friday, October 1st marked the 53rd consecutive day that the number of new lows on the NYSE has been greater than 40. This started back on July 20th, but if we ignore the five days that had less than 40 but greater than 30, we could actually extend the beginning of this deteriorating condition back to June 2nd or 85 market days ago. As a comparison, last year this indicator flashed "RED" for 108 consecutive market days, from May 15, 1998 to October 16, 1998 - just about the time that the Fed came to the rescue.
Last year, there were several days with new lows greater than 500, a few days greater than 900 new lows and on August 31st, 1998, 1183 new lows were set on the NYSE or a full 33% of all stocks that traded on the NYSE that day! A wash out indeed and quite a magnificent sign of capitulation! Over the past three weeks, nothing greater than 298 new lows have been recorded - and that 298 was last Tuesday. To put all of this in perspective, on October 20, 1987, there were 1174 new lows on the NYSE or 56.6% of all issues traded that day. These types of numbers in new lows don't occur often and once they do, a repeat of the same intensity within a year is extremely unusual - or even non-existent.
The slope of the Dow's 50-day moving average has been in a declining mode since September 13, 1999 when the Dow closed at 11,030.33. Its rate of decline indicator peaked at -1.68 last Tuesday...since then the rate of decline in the 50 day MA has decelerated and it stood at -1.29 on Friday. Note: this doesn't mean that the decline is over, but it does bear watching - that is, to see if the deceleration can continue.
Volume has picked up in the past few weeks. As a matter of fact, the 50-day MA in the NYSE volume bottomed on September 20, 1999 at 719.9 million and has since rebounded to 742.9 million. On Thursday, the volume on the NYSE eclipsed 1 billion shares. The surges in volume are usually a sign of market turns - or at the very least moments when something is just around the corner.
The consensus estimate for the Dow stocks for 1999 has been coming down over the past few weeks. It now stands at $481.56 down from $485.97 just four weeks ago. The biggest reductions coming from Union Carbide and Goodyear. This puts the Dow at a 99 P/E of 21.5.
Finally, it is that time of the year when many portfolio managers throw out the bad performers to cushion their cap gains,of course, this creates even better buying opportunities. I have found that if I want to get into a stock that looks good fundamentally but has not performed during the year, then the October - November period usually gives me a chance to pick it up at even better prices.
And let's not forget....the Fed Open Market Committee meets on Tuesday to reflect on the state of the US economy and interest rates. Given the poor conditions of the US stock market, don't expect the Fed to drop a bombshell, i.e., raise rates. Will this be enough to spark a relief rally? I don?t think it's worth the bet....
What the heck does all this mean?
I am just going to repeat what was stated last week:
<<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". >>
What makes me say the "next couple of months" rater than weeks is the fact that it is October, which is known to have a way of instilling moments of horrific fear in investors?.and?.Y2K effects could last into January. - These two reasons are why there hasn?t been any buying action in the Newsletter Portfolio over the past few weeks. It sits with 70% cash, in a wait and see mode....although admittedly we are getting close, IMO.
The Major Moving Averages
For those who are interested in the moving average levels, here they are. As of the close on Friday, October 1, 1999: The Dow's 200 day MA is at 10294.50, its 50 day MA is 10820.40. The 200-day MA is in an uptrend and the 50-day MA is declining. The Nasdaq 200day MA is 2522.10, and its 50-day MA is 2716.30. The 200-day MA is in an up-trend, the 50-day MA is flat. 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.
Charts on the Website
If any reader would like to see a particular market indicator, interest rate, CPI, or other economic indicator charted on the website, please feel free to send along any suggestions. I have a substantial amount of historical data and am happy to post what readers want to see!
The StockMotions Tracking Portfolio
The StockMotions Tracking Portfolio is now on the website. It will keep track of the buy and sell mentions in the newsletter. If readers would like to receive updates as to when a move is made, they should sign up for this service. Weekly newsletter recipients will not automatically receive these updates (some just aren't interested and I don't want to clutter their mailboxes with unwanted stuff). The sign up form is on the website. To get to it, readers should go to the portfolio link and then choose the portfolio signup link....or just click here:
stockmotions.com
On the Website
Each week, I update the charts on the website to include the data through the close of Friday. I will always try to have the updates by Friday night. Please visit the website at stockmotions.com to view them. The charts are a supplement to the newsletter - please feel free to use them.
*********************************************************
Paulo
_____________________________________________________________
Disclaimer: All contents and recommendations are based on data and sources
believed to be reliable, but accuracy and completeness can not be
guaranteed. Please be aware of the risks involved in stock investments. I
may or may not have purchased or sold the securities mentioned in this
newsletter without any further notice. Please do your own analysis before
investing in any stock. None of the companies listed ever pay for any of
the recommendations or mentions.
Copyright: 1999 StockMotions.com |
