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Strategies & Market Trends : Point and Figure Charting -- Ignore unavailable to you. Want to Upgrade?

To: Ms. X who wrote (13815)	2/11/1999 11:32:00 AM
From: Ms. X	Read Replies (2) \| Respond to of 34824

A must read from DWA. I thought this would be great for you all to read. It is good to study a little PnF and market history. Tom has allowed me to copy this here for you. This is from last nights report. SUMMARY: MORE NET NEW SELL SIGNALS RECORDED By now everyone has taken all the defensive action they are going to take. Most everyone knows the drill. We don't have to go through it again. All indicators moved lower this last week as did most sectors. We will continue to try to find those stocks that will buck the trend with the full understanding that in bear confirmed status the probability of success is limited. There is always a bull market somewhere and many of these tech stocks have pulled back to levels you missed months earlier. These pullbacks might provide great opportunities to buy call options on stocks you wanted to own but could not get your price earlier. By buying calls and holding until expiration you take the trading aspect out of the investment which should make many otherwise non call buyers consider that strategy. It offers staying power and in most cases will not be anymore cost than what you would normally expose for a stop in the stock. It's a way to do business without exposing your clients to the full risk of the market. We often get the question of how long this will last. We never know and don't predict. What is, is. We do know that over the last few years the market had a tendency to correct its excesses very quickly and this time might be the same. Who knows? There is no point trying to predict. The short-term indicators are in the 30's area now and the first sign of relief will be a reversal in the Percent of 10 and the High Low. The most important index to keep track of is the Option Stock Bullish Percent Index from here. It will signal a sustained change first. Okay, let's go back to a time when we had negative interest rate readings and a correction in the market. 1994 It always helps to go back and view times in the market that were similar. This in no way is an exercise in trying to predict what will happen. It is rather an exercise in what did happen. In November 1993 the Dow Jones 20 Bond Average gave a sell signal. Because of the signal in that Bond Average we said to lock in any variable mortgages. I will always remember that as I was too busy to lock in mine, paying dearly for that mistake. The 20 Bond Average collapsed, ie. rates rose until January 1995 where it gave a buy signal off the bottom. We immediately switched our stance on bonds and again the 20 Bond Average was dead on it. I remember a cover story a March edition of Business Week. It was a cover story, mind you, about how all the professional bond traders had lost big time by being short bonds as rates declined. I remember thinking how the only thing those brilliant guys needed was this one chart that they probably would never see their whole careers. The NYSE Bullish Percent reversed in early February just like now, but from higher levels, like 66%. The following year of 1994 was what one might call a "stealth bear market". By December the NYSE Bullish Percent had dropped to the 32% level clearly showing how many stocks had gone down rather than up. In August 1994 we got a rally that was primarily tech oriented. The good news is that our indicators were dead on it. September was the last capitulation phase, which took the market to the bottom in December. At the bottom we saw the Percent of 10 reverse up, the High Low reverse up and the Option Stock Bullish Percent reverse up. That was all we needed to go full bore from such a low level. The point of it all is that we are likely to see some good sector rotation this year. We'll take advantage of any sector that goes below 30% and reverses up. Hopefully technology will do this in the near term and we'll have a tremendous opportunity somewhere down the road. Establish your plan and work it! This report comes from the nightly Market Report available to the full subscription clients. An individual investor subscription is also available that includes commentary "From the Analyst" about market, stock and trading issues. Both subscriptions are excellent! dorseywright.com