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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Terry Whitman who wrote (4943)	10/23/2001 9:37:22 AM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Market Internals Sept 2001 vs. other Major Lows....... Terry, John Roque had a piece on 9-26 where he showed that the Advance decline ratios and the advancing volume vs. declining volume were lower and thus not as bullish as other key bottoming dates, which supports what you're saying about how the 9-21-00 low did not have all of the characteristics of other bottoms such as Oct 1998, Oct 12 1966, May 27, 1970 10-9-74, 8-17-82, 10-21-87, etc. One thing to note is that the days like 10-15-98 which he sites as having the best market internals of that bottoming area, was not the day of the actual low (Oct 8th 1998). Rather it was the day of the FED's intermeeting rate cut. here is his article. John This Isn't a 'Bottom' Just Yet By John Roque Special to TheStreet.com 09/26/2001 03:36 PM EDT I've been told that parents often have a relatively (emphasis on relatively) easier time raising children if they are consistent in their own behavior. In a less sensitive time, like it was growing up in the '70s and '80s, it was probably called being strict. This may be a stretch metaphorically, but I figure it's also a good idea to behave consistently when interpreting market behavior -- less gray stuff and more black-or-white scenarios -- which is why I find using indicators helpful. Indicators present the evidence strictly in each environment regardless of the "new age" interpretations that some promulgate. So, with this metaphor in mind and literally everyone talking about a "potential bottom," I thought I could continue interpreting two indicators strictly and look at Monday's action in light of other important bottoming periods. Here's what Monday's internal New York Stock Exchange numbers looked like for advancing and declining stocks and advancing and declining volume: A Look Inside Here are some of Monday's market internals Date (A) Adv Stocks (B) Decl Stocks (A) / (B) % (C) Adv Vol (D) Decl Vol (C) / (D) % 9/24/01 2412 807 300% 1463.6 266.8 538% Source: Arnhold & S. Bleichroeder Here's what internal NYSE numbers looked like during other bottoming periods. Comparatively Speaking... More internals during other bottoms Date (A) Adv Stocks (B) Decl Stocks (A) / (B) % (C) Adv Vol (D) Decl Vol (C) / (D) % 10/12/66 916 261 351% 6010 560 1073% 5/27/70 1312 191 687% 16070 1010 1591% 10/7/74 1301 228 571% 12380 1480 836% 10/9/74 1220 264 462% 15270 1890 808% 8/17/82 1564 155 1009% 88910 2120 4194% 10/21/87 2077 1756 118% 424577 19574 2169% 1/17/91 1519 263 578% 271197 37114 731% 4/5/94 2152 315 683% 325854 26144 1246% 9/8/98 2536 636 399% 733.183 69.682 1052% 10/15/98 2467 682 362% 817.752 93.631 873% Source: Arnhold & S. Bleichroeder It's not too hard to see that Monday's action, while impressive in terms of price percentage gains, was not emblematic of bottoming action when market internal data (as measured by NYSE breadth and volume data) are considered. I know history never repeats in detail, but the data presented here are a pretty good estimation for what needs to occur before talk of any attempt at a bottom becomes more serious. Besides, bottoms are processes, not events, and when one does occur, it won't likely be easy to identify. Because I've heard that bull markets climb a wall of worry, I would've expected Monday's action to be greeted with some skepticism. If it had, there probably would've been some staying power. But the put/call ratio (which I use as a contrary indicator) showed a sharp drop, suggesting investors are desperate to embrace any attempt at a rally because of their continued and unfailing desire to buy the low. My numbers show that puts fell to 53% of calls Monday, compared with 120% of calls Sept. 20 and 121% of calls on Sept. 21. I also follow put/call numbers for a bunch of big-cap, liquid stocks and found investors were quick to embrace the possibility that Tuesday's bounce was the beginning of something much bigger there, too. For example, Oracle's (ORCL:Nasdaq - news - commentary - research) call volume was more than 5 times put volume. Intel's (INTC:Nasdaq - news - commentary - research) call volume was more than 2.5 times put volume, and Applied Materials' (AMAT:Nasdaq - news - commentary - research) call volume was nearly three times put volume. I still think rallies are to be sold, and I don't believe that Monday's activity or the action from Friday suggests anything more than a bounce in a major downtrend. The evidence presented in the above table and the put/call information tell me that it's still a very good idea to stay defensive/cautious.

To: Terry Whitman who wrote (4943)	10/24/2001 3:36:31 PM
From: John Pitera	Respond to of 33421

2:48 (Dow Jones) Fed funds continue to show expectations of 25 BP rate cut at Nov. FOMC meeting is fully priced in. Market also showing 30% chance that Fed eases by the more aggressive half-point in Nov. instead, says Merrill Lynch strategist. By the Jan. meeting, he says odds of total 50 BP easing (which would encompass a 25 BP cut in Nov.) is "close enough to say fully priced in." (SPC) 3:08 (Dow Jones) Investors obviously don't trust what they're hearing from Enron (ENE) and are getting out of the stock in waves. Enron is the most active stock on the NYSE and has traded more shares than the next three most active stocks combined. Most of that volume is from blocks, as more than 900 trades have involved 10,000 or more shares. The stock is on its way to setting a new 52-week low at $15.94, down 19.5% on the day. (GS)