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To: patron_anejo_por_favor who wrote (37671)	6/4/2000 7:29:00 AM
From: re3	Respond to of 42523

from the toronto star today : Bought the lows of May? Then sell by Labour Day So far so good. Last week's broad rally in the North American stock markets could be the start of our expected summer up-leg. The rally could also spell the end of an old rule: Sell in May and go away. These days it's more like: When you buy the lows of May, be sure to sell by Labour Day. The old rule is based on the fact that historically the months from May to October generate lower returns for investors than the months from November to April. Common sense dictates that no rule works all the time in the equity markets, and last week I mentioned a few reasons why the sell-in-May rule may not hold true this year. The most notable were a firm bond market, a pending U.S. presidential election and the observation that such market leaders as Cisco Systems Inc. had found support at their 40-week moving averages. If a summer rally were to unfold, it could provide relief to many investors who were caught in the collapse of the technology stocks from March through April. This week I will apply some basic rules of technical analysis and try to estimate the magnitude of our summer rally. Normally a technician will study currencies, commodities and interest rates because they can effect the direction of the equity markets. Technicians also watch the market leaders to gauge the current health of the stock market. Market leaders in any given bull cycle can represent sectors such as financial, consumer, technology, bio-technology and oil. I call them dominant themes. Dominant themes are not new to the stock markets. Over the past 80 years, bullish stampedes have roared at various times into the railroads, airlines, mobile homes, gold and silver stocks, computer stocks and, recently, Internet stocks. These dominant themes can be dangerous. Investors should remember that many dominant themes, both past and present, do not survive. Pan American World Airways Inc. pioneered modern airline travel - and then went bankrupt. Early PC innovators such as Tandy Corp. were forced out of the booming computer manufacturing business by Dell Computer Corp. and Compaq Computer Corp. These innovators attracted competition and were killed off by their own success. The current dominant theme is technology, and we need to examine the group to better understand the current market conditions. Any technician observing charts of the group will quickly note they all have similar chart patterns. The technician may then conclude that the recent advance in the group was due to a bullish stampede and not particularly related to merits of any one company. We can now elect to study a small group of leaders and avoid the task of tracking hundreds of micro-cap technology stocks. The shares of Research In Motion Ltd. are a good example of a typical leading technology stock, and a chart should provide some guidance as to the outcome of our summer rally. This week's chart shows monthly closes of RIM plus the eight-month moving average and the long-term trend line. The chart is plotted on a logarithmic scale to show percentage price changes rather than dollar changes. RIM traded quietly in the $5 range through 1998 before rising to $7 in December, 1998, and breaking above the eight-month moving average. Investors using weekly closes should use a 40-week moving average to make the same observation. RIM enjoyed a new bull cycle through 1999 because the stock satisfied two technical conditions: The price was above the eight-month moving average and that average was pointing upward. The 1999 advance also allowed the technician to draw a trend line under the advancing chart prices. The trend line also helps to identify the three up-legs in the bull cycle. RIM became risky in early 2000 with the price spiking at more than $200, too far above the long-term trend line and the moving average. RIM was not alone; the entire technology sector had spike-like tops. In the resulting correction for the group, prices crashed below these important support areas. The selling in the group was excessive, however, and a rebound would fit in nicely with our summer rally strategy. Investors caught in the technology crash can look forward to two scenarios. In the case of the RIM-type crash, I would expect a retracement of one-third of the correction, or an advance to about $120 by Labour Day. In the case of the less damaging type of crash suffered by Cisco Systems Inc., I would expect an advance back to the old highs by Labour Day.