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

To: bobby beara who wrote (58397)	8/23/2000 5:23:18 PM
From: Saulamanca	Read Replies (1) \| Respond to of 99985

Found this on the Kahuna thread History suggests S&P 500 is poised to rally Surge usually follows tight trading range By Adam Shell, USA TODAY Frustrated by the stock market's inability to break out of its tight trading range? Be patient. Historically, trading ranges are followed by explosive rallies. Since early spring, the Standard & Poor's 500 index has meandered, making little headway. On March 31, the index closed at 1498.58. Late Monday, 20-weeks later, it stood at 1499.20. In between, it traded as high as 1516 and as low as 1357. Year-to-date the S&P 500 is up 1.5%. Not exactly the gaudy gains investors have become accustomed to, after five straight years of double-digit returns. But now's probably not the right time to give up on stocks. An analysis of similar periods in which the S&P 500 remained relatively flat shows patient investors are eventually rewarded. "This kind of market behavior is characteristic of the past two decades and has consistently been resolved bullishly," says Bernie Schaeffer, chairman of Schaeffer's Investment Research. Two recent examples: In 1999, the S&P 500 was trapped in a trading range between 1250 and 1400 from early April to the end of October. Its gain during the seven-month pause: 0%. But after breaking through the 1400 barrier in mid-November, the index jumped 18% before hitting its all-time high of 1527.46 on March 23. Perhaps the best comparison to today's market stagnation dates back to 1994, says Hugh Johnson, strategist at First Albany. The S&P 500 went nowhere between January 1994 and February 1995, a period in which the Federal Reserve slowed the economy after hiking short-term interest rates seven times. (Similarly, the Fed has boosted rates six times since June 1999.) After the Fed ended its string of rate hikes, stocks went on a tear, surging 146% from mid-February 1995 to July 1998. It's upward march, interrupted only by a three-month pause in 1996, was finally halted by the Asian financial crisis. A rally could happen again if the Fed ends its tightening cycle , says Johnson. Wall Street would welcome a rally. In the past four months, the S&P 500 has traded within 4.74% of its midpoint range, its narrowest range in two years, says James Stack, president of InvesTech Research. The Dow Jones industrials and Nasdaq composite have also been bogged down in tight trading ranges for months. Schaeffer blames market pauses on the demise of long, drawn-out bear markets, such as the 1973-74 decline that knocked the S&P 500 down 42%. Today, he says, traders dump stocks in sectors of the market that are not working and pile into rising sectors. The net effect: a flat market. "Instead of collapsing and moving out of its long-term uptrend, the market simply rests by moving sideways until its next uptrend," Schaeffer says. usatoday.com