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Technology Stocks : Network Solutions (NSOL) -- Ignore unavailable to you. Want to Upgrade?

To: Tom DuBois who wrote (140)	11/11/1998 10:00:00 AM
From: Platter	Read Replies (1) \| Respond to of 1377

From TheStreet.com.."The Chartist: The Correction Song Remains the Same By Helene Meisler Special to TheStreet.com 11/10/98 10:15 AM ET It's been quite a while since any of us has listened to a vinyl record, let alone one that skips. But, ahh, we cannot forget how it sounds: the same words over and over again until you can't take it anymore and finally you drag yourself off the couch to move the needle to the next song. Lately, I feel like that broken record, harping about an upcoming correction over and over again. Perhaps many of you are wondering when I'll move on to the next song. After trying not to focus on this expected correction for a week, I now cannot keep silent any longer. There are too many signs that the correction is near. This market is long overdue for a correction, and it now feels imminent. First, there's the overbought reading. I have discussed the extreme overbought reading we encountered two weeks ago and how such an extreme reading is a sign of good upside momentum. However, shortly after we reached that peak overbought, the market pulled back for three or four days and came on again. So far, so good. But in last week's rally we lost our upside momentum, for the market could not manage to exceed its prior overbought level. See how the rally in the overbought reading failed to make a new high last week? That's the sign of a tired market, one in need of a correction. Then there's the number of stocks making new highs. It's anemic at best. I've been willing to ignore it as long as the other indicators were still showing upside momentum. But with the market reaching such a maximum overbought reading, it can no longer be ignored. We've given this indicator plenty of time to expand and it hasn't. This rally has seen a maximum of 82 stocks make new highs on the New York Stock Exchange. To put this in perspective: In September, we saw 94 stocks make new highs when the Dow was 700 points lower and the S&P about 70 points lower. (Note: Due to a computer error, I cannot show the new-high chart today.) For those of you who might argue that the stocks making new highs in September were utilities and now we have operating companies on the new high list, I would counter that last Wednesday, when 82 stocks made new highs, the Dow was at 8783. Two days later and 200 points higher, we only had 67 stocks making new highs. That's a comparison of apples to apples, and it's still rotten to the core. This means there's too much churning at the highs, with very little follow-through. Another sign a correction is needed. Finally, the percentage of bullish advisors last week was pushing up toward the 50% level (47.8%). Typically, a reading over the 50% level will signal a short-term correction in the market. In addition to that, when I hear CNBC telling us that this pullback is very healthy and there is a sense of complacency on the floor of the NYSE, I get worried. Now all of this should not be construed as negative. This should be viewed as another swing down to further flesh out the chart bases and provide us with a better buying opportunity. There has been significant improvement underneath, and most stocks have likely seen their lows. I'd expect stocks will hold at much higher lows into this correction, elongating their bases and relieving their overbought status. So, where will we go on the downside? The 200-day moving averages in both the Dow (about 8600) and the S&P (about 1080) should provide some pretty good support on the downside. We should slide enough to scare out some of those weak bulls. As for individual stocks, most are so overextended that it is my preference to buy into the correction. The list of positive names includes American Express (AXP:NYSE), AT&T (T:NYSE), IBM (IBM:NYSE) (buyable down several points), Johnson & Johnson (JNJ:NYSE), J.P. Morgan (JPM:NYSE) and Philip Morris (MO:NYSE) in the DJIA. Elsewhere, Air Products (APD:NYSE), Anheuser-Busch (BUD:NYSE), Compaq (CPQ:NYSE), Motorola (MOT:NYSE), Federal Express (its parent is FDX (FDX:NYSE)), Gap Stores (GPS:NYSE) (definitely on a dip), Sara Lee (SLE:NYSE), Amgen (AMGN:Nasdaq), Intel (INTC:Nasdaq), Sun Microsystems (SUNW:Nasdaq) and Nordstrom (NOBE:Nasdaq). Two drug stocks nag at me on the negative side. They are American Home (AHP:NYSE) and Bristol-Myers (BMY:NYSE). Currently, the market is ripe for a correction. If it continues to rally from here without one, it will be vulnerable to a more severe correction later on. This expected decline is one that would make the stock charts look more buyable. In the meantime, we will wait for that better buying opportunity as the correction will provide the market with a much needed rest from its exhausting climb. Until then, this broken record will not move on to the next song. "