This is an excellent commentary that I am in complete agreement with.
cbs.marketwatch.com
To review, it was mentioned in this space June 24 that the market's action of the prior day indicated that June 16 was indeed a bottom of intermediate proportions (several weeks to several months). At the time, a substantial intermediate advance was expected.
From June 23 to July 20, the Dow rose 7.5 percent on an intraday basis.
As well, the Internet-related and enterprise software groups were expected to lead the advance. Over the next three weeks, the former advanced 21 percent, while the latter gained 10 percent.
The point of the June 24 Market Comment was this: Despite the market's shoddy breadth (first outlined in this space April 29), a number of growth stocks with names like Amazon.com, Yahoo!, MindSpring, CMG, AOL, Lucent, Cisco, EarthLink, Legato, Labor Ready, Peregrine, Whittman-Hart, Dell, Microsoft, and WorldCom, were displaying excellent tape action, and offered opportunities for the aggressive intermediate-term speculator.
Now, however, most of these issues have broken down after becoming very extended beyond their bases of support. Technically, the immediate concern is that these stocks will break near-term support levels, as began to happen Wednesday with Yahoo!. Others, CMG and EarthLink are two, have already shown their hand by forming wide and loose bases, a faulty development. Heightened volatility often accompanies a trend change.
Love them or hate them, the Internets, particularly Amazon, Yahoo!, MindSpring, CMG, and AOL, represent the market's dynamic leadership. Their action can offer clues as to the general market's direction. Along with senior technology issues like Cisco, Dell, Lucent, and Microsoft, their bullish behavior in May and June was a valuable tip-off that the market was ready to turn. The June 23 follow-through day in the major averages, then, was merely a confirmation of what the tape action of the leaders had been saying for a few weeks.
At present, the problem is that, following these stocks' June breakouts, precious few shares have joined them as leaders. Normally, other stocks join an advance's initial leaders as, one by one, they break out of bases and head north. Usually this process takes a few months. That this lasted for just five weeks speaks of the market's serious structural weakness.
Too, the number of stocks building new bases is scant. A base, or sideways consolidation area, is a necessary prelude to a major advance.
This latter point, along with the biggest divergence between the blue-chips and NYSE cumulative advance-decline line since the Aug. 10, 1989-to-July 17, 1990 period, is enough to know that the market is simply not ready for a sustainable intermediate-term advance at present. More of a corrective process is necessary before the seeds can be sown for the next legitimate ascent.
As has often been repeated in this space, it is usually best to ignore the first few days of rally after a significant correction. Many rallies are but brief headfakes. Rather, the follow-through day should be focused on. Such a day consists of a substantial advance on a swelling in volume. This technique, developed by William O'Neil, caught the fifth day off the October 1990 bottom, the seventh day off the July 1996 bottom, the seventh day off the April 1997 bottom, and the fifth day off the January 1998 bottom, among other market troughs.
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COMMODITIES
New York light sweet crude for September delivery declined 1 cent to $14.20.
August gold fell $2.60 to $286.30.
CURRENCIES
The dollar traded mixed vs. the yen and d-mark.
Dollar/yen was quoted at 144.60 from Thursday's 143.76.
Dollar/mark was at 1.7757 from 1.7809. See latest currency rates.
Kevin N. Marder is Markets Editor for CBS MarketWatch.
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Greg---> we are going lower doesn't take much to see this... This is text book market action, I hope it doesn't turn into a Bear....You never see it you only know it when it is happening, then it could be too late... |
