INSIGHT - U.S. stocks underpinned by solid charts
Reuters Story - March 10, 1998 16:01
%US %STX %CORA %RESF %INSI %DRV %U/I INTC MOT CPQ .VIX .PSE V%REUTER P%RTR
By Huw Jones
NEW YORK, March 10 (Reuters) - Leading U.S. stock indices,
which climbed to record highs Tuesday, are still underpinned by
solid technical factors and there is little sign of the
traditional red flags which point to the rally ending.
But there is some concern that the technical picture will
erode if the influential technology stocks falter any more,
chartists said.
The stock market escaped with only minor damage after
first-quarter profit warnings from tech giants Intel Corp
, Motorola Inc and Compaq Computer Corp
.
The market volatility index shows a downward trend,
indicating there is very little fear in the market, said Bill
Meehan, chief market analyst at Cantor Fitzgerald.
This can also mean there is much complacency, he added.
"The trends are indicative that we could have a correction
at any time, but for the most part, the numbers are not
flashing extreme danger signals," Meehan said.
The weekly Investors Intelligence survey last week showed
that 48.8 percent of the market was bullish, below the 50
percent level where analysts said concerns begin.
"Between right now and last week, there has been not much
of a change, and we will be in pretty much the same area this
week," said Michael Burke, editor of Investors Intelligence.
Peter Green, vice president of technical research at
Gruntal & Co, said the relative strength index (RSI) has
wobbled, but this was countered by rallying stock futures.
"If we break 1070.30 in the S&P500 June futures, that would
be the sign we would be looking for," Green said.
Tuesday afternoon, the June futures were up 9.20 points at
1074.50, after hitting a new intra-day high of 1075.50.
"If the Nasdaq were to reverse, that would also be a
negative," Green said.
The Dow industrials and the Dow transports are both strong,
thus "confirming" the rally -- according to another
long-standing market rule known as Dow Theory, analysts said.
There is also no sign of heavy churning in the market which
would have raised another traditionally-reliable red flag.
"The only thing wrong with this market is overvaluation.
The technical action is pretty good," said Richard Russell,
editor of Dow Theory Letter.
"It's a battle between what the market should be doing and
what it's actually doing," Russell said. "What it should be
doing is running into trouble. What it's actually doing is
going up."
Steven Shobin, technical analyst at Lehman Brothers, said
other traditional warning indicators such as excessive
speculation, a break beneath key support levels, a failure in
bonds or in the put/call ratios have not been spotted yet.
The put/call ratio, a measure of speculation, jumped
sharply when the market fell Monday, a bullish sign, Shobin
noted.
"This tells me that not all of the money that's in the
marketplace has been invested yet," Shobin said.
"One thing that would scare me a lot is if the technology
sector continued to decline. The overall market has done best
when the technologies have led, and if technology continued to
underperform, I would have to be very tentative," Shobin said.
This is the first rally since the 1994 bottom that the
Pacific Stock Exchange high-technology index has not
been able to match the high of the S&P500 index, Shobin said.
Tuesday afternoon, the PSE index was up 4.59 points at
327.10, but well off the year's high of 348.60.
Shobin pegged key support for the index at 300.
Dow Theory Letter's Russell said it was the mania to own
stocks that was fueling the rally and this would die of
exhaustion later in the year. |
