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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: UnBelievable who wrote (52545)	5/30/2000 8:33:00 AM
From: UnBelievable	Respond to of 99985

Security Trader.Com Weekly Commentary: May 29. 2000 Any reference to short OR long term indicators is a direct reference to the first 6 indicators on this link ! Bear Market..........In its simplest form, a Bear Market is a period when prices are primarily descending, usually for a long period of time. Bear Markets generally consist of three phases. The first phase is distribution, the second is PANIC and the third is akin to a washout, where those investors who have held through the first two phases, FINALLY give up and liquidate. From October 9, 1997 thru January 12, 1998 the NASDAQ 100 lost 15% of its value (high to low) and spent a total of 24 days below the 200 day moving average. From July 21, 1998 thru October 10, 1998 the NASDAQ 100 lost 28 1/2% of its value (high to low) and spent a total of 8 days below the 200 day moving average. From March 24, 2000 thru recent lows on May 24, 2000 the NASDAQ 100 has lost 40% of its value (high to low) and has spent an aggregate of 5 days under the 200 day moving average........so far. The difference between then and now ? Interest rates were stable OR declining in the first 2 scenarios whereas interest rates have increased dramatically over the past 18 months. One thing for certain is that the HUGE decline in interest rates that we had from April 1998 thru October 1998 was an anomaly precipitated by the currency crisis that started in the Asian countries, swept through Eastern Europe and eventually spilt over to South America. Until the stock market receives a CLEAR indication that the rate hikes are over OR can see the light at the end of the tunnel with respect to rate hikes............we will continue to see the kind of volatility / shakeout that we have experienced over the past 2 months. Oh yes........and as soon as the market thinks the rate hikes are over it will start worrying that the brakes have been put on too hard and we will need to be fearful of a recession..................its simply a never ending battle if you choose to listen to ALL of the propaganda. If you listen with your eyes you will be MUCH further ahead of the game than most people. The things that we must see before we get excited about getting long this market are the following........1) interest rates must stabilize 2) the dollar must not loose too much of its current strength and 3) we must see some basing patterns emerge in the index (NDX / IIX / SPX / DOW 30 charts and 4) the OTC Bullish percents must return to a buy signal to indicate that the markets breadth is sufficient take it off 'life support'. Sometimes its almost too much to think about all of the above and it becomes such a chess match that its overwhelming.........and when things become overwhelming most people do 1 of 2 things......1) they simply GIVE UP.......or 2) they go to a different trading system......one of those BLACK BOXES that supposedly takes ALL of the effort out of trading and makes things systematic for you. IF the market were not dynamic, Black Boxes would be the perfect tool.........but unfortunately the market is dynamic. The people that simply GIVE UP on this market are in two categories......1) they have not yet made their trading multi-dimensional and are typically only trading on the long side 2) they have washed out and will most likely be back in this market when the next TOP comes around. The answer for most people that may find themselves in category number 1 is to recognize where we are in the current market cycle and just hang loose on the sidelines........if your trading, it doesn't mean that you are in the market every day.....it means that you choose to have dry powder available at opportunistic times. Although I make reference to a Chess Match above, trading is really not like that at all..........in Chess, you have a game plan AND the best players are masters at anticipating their opponents next move.........in trading, you certainly need a game plan, but one important thing is that unlike Chess, the stock market is statistically good about broadcasting its moves prior to the big move. In other words, consolidation at support in a downtrending market typically results in that support failing. Consolidation under resistance in an up-trending market typically results in penetration of that resistance. Triangle patterns in up-trending markets typically breakout with great consistency.........whereas triangle patterns in downtrending markets typically breakdown with great consistency. Reversal sticks in Bull Markets are typically great spots for short term traders to take short term swing positions. Reversal sticks in downtrending markets have to be traded with GREAT caution. Head & Shoulder pattern formations on the major indices after a HUGE bull run are typically topping patterns........Inverse Head & Shoulder pattern formations in severe downtrending markets are good basing patterns upon which the NEXT LEG up can be built. All of these are nothing more than signals that the market is broadcasting to those who are willing to listen. As for the NYSE & OTC Bullish Percents.....its the same old song being played. The OTC Bullish Percent declined a full 6 percentage points from 35 to 29% and remains on a SELL signal. Although the DOW 30 index chart is showing signs of weakness, the NYSE Bullish Percent held its ground last week and remains on a BUY signal @ 41%. The short term indicators for the OTC stocks (primarily technology stocks) are all on SELL signals........one important thing to note however is that the OTC Hi-Low Bullish Percent is now at 16%...........back in April, it clocked in at a low of 12% before reversing up. Its like playing Russian Roulette to anticipate these indicators but its always nice to know where you are with respect to previous lows. And let us not forget, the OTC Bullish percent (the longer term indicator for technology stocks) now at 29% has seen lows of 10% in '87 & '98 respectively and also 16% in 1990........so, although its low now, its been lower. In Summary.........this is a VERY difficult market to trade right now and until we see the interest rate picture clear up......it will remain volatile. One of my favorite well known traders says it best....."the BEST defense, is a good offense"........This makes so much sense........you are the coach, you say when to run offensive plays and what play to run etc. Depending upon your offensive game plan and experience, sometimes its best just to stay on the sidelines and WAIT. If you are an aggressive COACH, you have been running plays by shorting stocks.........if your not experienced with shorting stocks...FORGET that and just wait on the sidelines and keep your eyes open .......because when the market turns, it will broadcast the BIG move before it happens. PATIENCE is a virtue and those who exhibit patience and a good game plan will be well rewarded. Most technology stock charts as of this week are on a very slippery rope and any reversal up at this time should be considered ONLY as a short term trading opportunity. Keep your eye on the interest yield next week for any confirmation of a base being put in. The KEY to any sustainable rally will be a GOOD BASE (pattern) in the indices