Here's the first of my thread-mining finds of the weekend: a detailed and comprehensive post on the state of the market by Don Sew on Stock Attack this morning(for trading ideas, pay close attention to his statements on the biotech index (BTK), gold (XAU), the dollar and its effect on the economy):
o: Chris who started this subject
From: donald sew
Saturday, Dec 2, 2000 10:00 AM ET
Reply # of 37037
DEC 2 INDEX UPDATE
-----------------------
Short-term technical readings:
DOW - lower midrange
SPX - lower midrange
OEX - lower midrange
NAZ - lower midrange
NDX - lower midrange
VIX - 31.65, midrange
PUT:CALL RATIO - .61
NAZ NEW LOWs - 264
Per my short-term technicals the overall market is in the lower midrange. For reference, if the market was to
continue straight down I would get CLASS 1 BUY signals in 2-3 days - not saying that it will move straight down.
The most important issue that occurred on FRI was the DOW closing below the horizontal trendline of the
DESCENDING TRIANGLE, which Paul has been discussing.
With the NAZ getting beat up the DOW, especially the DRG index has be flying high. I heard on CNBC that PFE
and MRK has now moved into the top 10 largest market cap companies and I believe ORCL was one that
knocked out of the top 10. I am mentioning this since EXTREME SECTOR ROTATION has been at work
recently. My position with EXTREME SECTOR ROTATION has always been since I started mentioning it in the
spring of 1999, is that EXTREME SECTOR ROTATION is an ANOMOLY to the market and eventually will be
corrected, which should also hold true for this recent display of it; therefore I strongly feel that the DOW may now
be setting up for another correction phase. If the DOW does correct strongly and the NAZ rallies, that again would
be another phase of EXTREME SECTOR ROTATION and that also will eventually get corrected.
EXTREME SECTOR ROTATION, which has been in the market about 1 3/4 years was mainly viewed by most
in the past as a good thing. As one sector runs up hard at the expense of another, eventually the laggard would
catch up. Unfortunately the result of EXTREME SECTOR ROTATION was a 50% cut in the NAZ, so far. So
my position is a simple one, and that is as long as we see EXTREME SECTOR ROTATION, the overall market is
not yet done with correcting itself.
Subjectively, I feel that EXTREME SECTOR ROTATION is just product of the momentum trading mentality,
which was proliferated in 1999, where so many was saying that P/Es dont matter anymore. As long as EXTREME
SECTOR ROTATION continues, traders/investors will continue to just move their money from a sector that is
getting cold to a sector that is getting hot. Sorry but that doesnt sound like a good fundamental reason for the
overall market as a whole to move up, which it hasn't.
On a brighter note, the EXTREME SECTOR ROTATION phases have actually dimished over time, which could
also be a hint that the market may be getting closer to a bottom. In 1999, we saw the NAZ and DOW go in
opposite direction for months, but now the time frame is down to weeks or even days.
Im not one that concentrates on price targets, but I strongly feel that there is still more downside for the overall
market, whether it comes immediately or down the road. Also, as mentioned months ago, once SPX broke below
1340 I would turn very bearish.
Many are focusing on the NAZ/NDX and recently I believed that a mid-term bottom was in around last FRI(NOV
24) . SMACK-SMACK-SMACK. Dont worry I dont need to get smacked too often to get the hint. In my
personal account, I went significantly long that THUR/FRI only to watch a strong intraday rally on MON(NOV
27) turn to mush, at which time I ran for the hills and close a majority of my longs(mutual funds-UOPIX). Not to
bore everyone with all the details, I became a chicken again and have my positions hedge with only a very slight
LONG BIAS and back to 85% cash.
On Friday I posted the FIBONACCI REBOUND LEVELS, based on on different peaks, assuming that 2426
was the LOW(NDX):
1) 4080-2426 = 3055(38%) 3253(50%) 3451(62%)
2) 3315-2426 = 2764(38%) 2870(50%) 2977(62%)
3) 2914-2426 = 2611(38%) 2670(50%) 2729(62%)
Interesting to note that the NDX yesterday(FRI) got as high as 2674, only selloff strongly again intraday and close
125 points lower at 2549. So for now the NDX was only able to get back to the 50% level of the lowest peak at
2914. Sorry but thats not real promising.
Besides the obvious negativity in the SOX/NAZ/NDX, another issue that is making me believe that there is more
downside to the NAZ/NDX is the
BEARISH PENNANT forming on the BTK(biotechs). Here are the coordinates:
UPPER TRENDLINE - highs of 11/15 & 11/27
LOWER TRENDLINE - lows of 11/13, 11/14, 11/30
Although I am unable to get the volume reading on the BTK, I did check the volume on various individual biotech
companies(amgn,dna,bgen,imnx,chir,gild,sepr,mlnm,bche) and the volume for them did decline during this period
which is confirming the PENNANT. Eyeballing it, it appears that the APEX of this BEARISH TRIANGLE on the
BTK, should arrive by the end of next week. If we assume that this PENNANT will break to the norm, that would
be additional negativity on the NAZ/NDX which could produce LOWER LOWs again as soon as next week.
The only bright spot I noticed on the NDX/NAZ, which I wont go hog wild about, was that on FRIDAY it formed
an imperfect "TRISTAR" pattern which is only an average candlestic reversal pattern to the upside. On FRI, there
was a chance that the NDX would for a MORNING STAR which is more reliable, but with the intraday selloff,
we have to settle with the TRISTAR. It may be good for 1-2 days upmove - MAYBE!!!
What also bothers me is the recent performance of the NAZ/NDX in relation to the recent NAZ NEW LOWs
spike to the 800 range. As previously mentioned, sizeable spikes are commonly followed by immediate/strong
rallies that holds more than intraday. Yesterdays intraday rally went poofy. Such action is hinting that the NAZ
NEW LOWs could create another upspike into extreme levels implying that there could be more downside, or at
least minimum a retest.
Since option expiration is only 2 weeks away, I checked the MAX-PAIN for the the QQQ and OEX, which were
at 70 & 720. Although they are still above the current price for the QQQ and OEX, they have dropped
significantly over the last few days, implying that its upward pressure s for them are declining, so for now I wont be
too optimistic that option expiration will have a strong upward influence, unless they change.
Earlier this year I bought HM leaps(gold stock) which did nothing but head down. SMACK-SMACK. However
in the last 10 days it has rebounded 33%, with similar action from other gold stocks. The price of gold has moved
up some but not enough to justify such a strong rally. Maybe it is short-covering, or maybe its a hint that GOLD
may be on the verge of breaking to the upside. In line with GOLD possibly breaking to upside, the US DOLLAR
recently dropped significantly. If the US DOLLAR continues to drop that would add additional negativity to the
overall market. From the following chart, tfc-charts.w2d.com , it appears that the DOLLAR
formed a DOUBLE TOP, and if the DOLLAR drops below 114 on the DEC FUTURES it would produce a
significant LOWER LOW which that would give added confirmation of the DOUBLE TOP, implying that the
DOLLAR could continue lower. From the weekly chart tfc-charts.w2d.com , the trendline from
the OCT 1999 lows is now around 112. I would consider a break below 112 as an important break of the bullish
trend for the dollar. As mentioned previously, the U.S. exports are basicly limited to the lowest valued cargoes like
wastepaper/paper products/tinplate/metal scrap/wet salted hides, and the much more valuable cargoes like
machinery are moving to foreign suppliers many of which are in EUROPE. As these foreign companies expand
such should help their local economies which may further hurt the U.S.DOLLAR down the road. No, Im not saying
that the US DOLLAR will die, by no means, but just added downward pressure on the DOLLAR which could
intensify liquidity exiting the U.S. in the future, which would add more pressure to the U.S. stock market. An
example is BOEING which recently lost contracts to AIRBUS from SINGAPORE AIRLINES and QUANTAS.
Yes Ive heard arguements that AIRBUS bidded so low that they wont make money, and that those contracts dont
mean a darn thing to BOEING. Just maybe the strong U.S.DOLLAR was a factor that made AIRBUS win those
contracts. Im no expert in BOEING specificly and do not know all the details, but mentioned them since it is a
common household name. However, thru my contacts in the steamship(containership) industry, I am aware of other
U.S. corporations which are losing valuable carge contracts to foreign suppliers in areas of roadbuilding
equipment/cooling towers due to the strong U.S.DOLLAR. Please also keep in mind that once these high priced
contracts are lost to foreign companies its not that simple to regain them, For example it takes 3 years to build a
containership, although the U.S. has not been a major player there for years.
seeya |
