received a hard copy yesterday.........déjà vu?.........
yep, pushing a bottom like the top was ramped. high probability that an IT bottom is imminent. but...and a big BUT...that could be 100-400 NAZ points away.
this came from swenlin's weekly commentary (pretty much sums up my thoughts)....
MARKET REVIEW AND ANALYSIS (As of the close 6/14/2002)
REVIEW: It was another losing week for the stock market. The net change for
the major market indexes this week was: DJIA -115 (-1.2%); NYSE Comp -11
(-2.1%); S&P 500 -20 (-2.0%); NASDAQ Comp -31 (-2.0%).
BULL/BEAR MARKET CONTEXT: Bearish. We should consider that we are in a
secular bear market that will last until early-2003, and possibly longer. The
extreme decline of the Nasdaq implies that this will be a once-in-a-century
bear market, taking the broad market to extremes of under valuation, such as
Dow yield of 6% and S&P 500 P/E of 10. With stock prices being at record
levels of overvaluation, combined with an economy vulnerable to a mountain of
consumer and corporate debt, the setup for such a decline is already in
place.
PRICE TREND: Bearish. Price Momentum Oscillators (PMO) are declining and
below zero, but none are excessively oversold yet. The significant chart
feature for the major indexes is a declining trend channel drawn from the May
top. Prices have been neatly contained within this channel. I think a break
out of this channel in either direction will signal the final stages of this
decline have begun. I would take the meaning of a break up to be that the
price lows are in and that a new advance would be starting, pending a short
retest. A break down would probably start a sharp selloff or mini-crash that
would end in a final panic low, followed by a new advance.
PARTICIPATION: Bearish, ready to turn. The IT Breadth Momentum (ITBM)
Oscillators are quite oversold and meet requirements for marking an important
low.
VOLUME: Bearish, ready to turn. The IT Volume Momentum (ITVM) Oscillators are
quite oversold and meet requirements for marking an important low.
CYCLES: Bearish, ready to turn bullish. The 9-Month Cycle trough and
associated price low is due to arrive June 21 or 24 (next Friday or the
following Monday). Once we see the actual price low, we can have a better
idea of how to forecast price progress for the next 9-Month Cycle; however,
we can take a first cut of the timing from June 22.
The 4-Year Cycle trough is due in early October. The next 20-Week Cycle is
likely to have a bearish bias, and will probably crest in August, going into
a trough around November 6. This gives us a one month spread between these
two important troughs, but I'm inclined to take my lead from the 20-Week
Cycle.
SENTIMENT: Mixed. The Rydex Ratio has reached the extremes of last September,
so it is reflecting sufficient bearish sentiment to mark an important price
low. Investors Intelligence bulls have finally backed off somewhat, but too
many have still not given up. The VIX finally broke in the right direction
Friday, but the VXN still hasn't cracked.
SEASONALITY: Bearish. We are in a six-month period of bearish seasonality
lasting until October 31. The next period of ST favorable seasonality begins
June 27 and ends July 5.
FUNDAMENTAL OBSESSIONS: For purposes of tracking our timing, I am long-term
neutral, but for purposes of discussion I am bearish because of market and
economic fundamentals. Just as there was an upward momentum of emotions
during the bull market, there is now a downward momentum that will feed on
itself until prices are back to long-term bases and valuations will be
positively mouth watering. Unfortunately, this will take time. There is some
chance that we'll hit the final low this fall, but we have a long way to go,
and it will probably take another year or more.
GENERAL DISCUSSION: The S&P 400 Mid-Cap and 600 Small-Cap indexes are
beginning to look like head and shoulders setups. The left shoulder is the
January top, the head is the April-May top, and the neckline can be drawn
under the February lows. I am guessing that the neckline support will hold,
and we'll see a right shoulder rally in conjunction with the 9-Month Cycle
trough, due at any time.
Timing on that right shoulder should coincide with the timing of the next 20-
Week Cycle. Calculating ahead 20 weeks from a June 22 trough would give us a
projected 20-Week Cycle trough on November 6. Assuming that the cycle tops
early, as they tend to do in bear markets, I would project the next important
top to be about mid-August, and the next major price low at the end of
October, right where it belongs.
While I have been describing a mid-cap/small-cap scenario, this clearly, in
my opinion, will apply to the broad market as well; however, chart
configurations are so varied, I don't want to strain my brain on price
targets until I see just where this current decline finally ends.
Most of our index and indicator charts present pictures that are good enough,
maybe even better than that, in terms of providing ample evidence of an
intermediate-term bottom. Friday's selloff and reversal also add to the pile
of evidence, although an actual rally would have been better.
PMOs are just not oversold enough, and the compression needed for a spike
price low is lacking. On the other hand, our PMO Analysis charts show almost
perfect setups for an IT bottom, so be alert.
What to buy on the next rally? First look at the market/sector relative
strength ranking on the DPA Daily Report. You will notice some flickers of
life among the cadavers toward the bottom of the list -- these are the ones
that have positive rank changes for the 5-day and/or 15-day periods --
Airlines, Computers, Software, Utilities. These are not recommendations, just
hints of where to look. I think Utilities look very good.
Sectors near the top of the list are vulnerable, particularly if they have
not corrected during the recent market weakness. The Health Care Payer sector
is, in my opinion, on its last legs. In my recent interview with Ike Iossif
(to be released sometime Saturday) I have featured the chart book of the
stocks in this sector.
In conjunction with the newsletter list, now is the time to start scanning
the relative strength chart books of the ETFs and Market/Sector indexes.
Check charts at the top with an eye for finding the ones that will be
rotating out of favor, and at the bottom for the next winners.
BOTTOM LINE: Triple Witching options expiration is next Friday, and, as much
as I'd like to see a final mini-crash, it doesn't seem likely that they're
going to let all those put holders make all that money. Nevertheless, the
market is very oversold intermediate-term and short-term, and, in a bear
market, this is an extremely dangerous condition. Nothing has happened that
offers proof that a bottom is in, so don't get anxious about getting long
just yet.
If the market is able to rally big on Monday, breaking out of the declining
trend channel, that will probably trigger an avalanche of short-covering
sufficient to end the decline and launch a rally lasting several weeks.
Probably. Now, having said that, I want you all to look at the S&P 500 chart
for December 2000 and January 2001. That was a 9-Month Cycle low that should
have resulted in a nice rally, but it didn't. There was a breakout, a
pullback, then a crash. Keep this in mind while you're playing the next
rally.
-- Carl Swenlin |
