Michael: Having waited until his prediction of Friday that there would be further deterioration was proven wrong by yesterday's advance, this is what Acompora said this morning:
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February 23, 1999, 10:30 a.m. EST
Prices as of close on 02/22/99
U.S. Stock Market Outlook
Near-Term
Yesterday, the DJIA ended the day up +212.73 points at 9,552.68 or +2.23%, the NASDAQ Composite was up +58.4 points to 2,342.0, and the Russell 2000 was up +5.52 points at 397.82. Two stocks rose for every one that fell on the NYSE. Apparently, the market maybe reflecting no change in the current direction of interest rates from Alan Greenspan's testimony today. The DJIA gain of over +200 points puts the DJIA within 91 points of its January 8 closing high. With that in mind, we may have just had our 5% correction in the DJIA and may make marginal new highs in the DJIA Index.
About four weeks ago we called for a normal correction within our secular bull market. For us normal meant a 5 to 10 % decline. We reasoned that the previous four month advance needed to be corrected. Since then the DJIA dropped 5%, the Russell and NASDAQ fell 10% respectively. And the Internet/Technology stocks corrected their excesses. In some cases more than 15%. The DJIA and the S&P 500 held above their near term support levels while breadth data virtually collapsed. This is an excellent example of what we mean by 'stealth'.
Did we expect yesterday's 200 point gain in the DJIA ?
Honestly, we did not.
Where we surprised to see a sharp rally ?
No !, because, the technical community had the same loud consensus voice. They including ourselves, were all concerned about too much bullishness and too little stock participation (negative breadth). Theses technical problems were too obvious, but unlike many technicians, we did not interpret this activity as a bearish omen because most Dow stocks did not look vulnerable to us.
What now?
The support level on the DJIA (9,100) is now very formidable. It should serve as a new much stronger floor on the DJIA.
The stocks that held up well during this corrective phase, will continue to lead: Drugs, Financials, selective retailers, restaurants, and beverages.
Short covering was part of yesterday's success and volume could have been greater -- These are the excuses that the bears will use today to minimize the markets advance.
But for long term Bulls like us, the adage holds true, "NEVER FIGHT THE TAPE". If the correction to date is all that the market gives us in the way of a normal pause, so be it ...
The bottom line is, that the internal numbers were bad but the market still wants to go higher. Our 1999 DJIA targets were always in place. They are 9,800 near term and an extreme of 11,500 on the longer term. The extent and duration of the current advance should be determined in the next several days by the upside follow through, but the downside momentum appears to been broken, and that is the real message that we offer today.
Attractive stocks: PFIZER (PFE-133, is rated 'HOLD' by Prudential Securities Research), Merck (MRK-81 3/4, is rated 'HOLD' by Prudential Securities Research), Johnson & Johnson (JNJ-87 15/16, is rated 'ACCUMULATE' by Prudential Securities Research), Citigroup (C-55 7/16, is rated 'HOLD' by Prudential Securities Research), American Express (AXP-108 1/2, is not rated by Prudential Securities Research), JP Morgan (JPM-113 1/8, is not rated by Prudential Securities Research), Home Depot (HD-61 1/2, is rated 'ACCUMULATE' by Prudential Securities Research), WAL-MART STORES (WMT-88 1/4, is rated 'ACCUMULATE' by Prudential Securities Research), McDonalds (MCD-85 5/8, is not rated by Prudential Securities Research), Anheuser Busch (BUD-73 1/2, is 'SBUY' rated by Prudential Securities Research), Adolph Coors (ACCOB-58 1/8, is rated 'SBUY' by Prudential Securities Research), American Intl Group (AIG-119, is rated 'ACCUMULATE' by Prudential Securities Research), Marsh & Mclennan (MMC-69 1/2, is not rated by Prudential Securities Research), Hewlett Packard (HWP-73, is not rated by Prudential Securities Research), Clorox (CLX-124 1/4, is rated 'SBUY' by Prudential Securities Research), and Disney (DIS-34 7/8, is rated 'HOLD' by Prudential Securities Research).
Prudential Securities makes a primary over-the-counter market in the shares of Adolph Coors. What the market's correction has wrought ?
So far, the pause on the market correction that commenced in early January 1999, has accomplished several things:
Now there are 55% bulls down from 61% a few weeks ago. This percent is headed in the right direction although we would still like to see far less optimistic sentiment on part of the bullish market letter writers.
The DJIA has retreated 5%. In the process, it successfully retested its primary support level three times. We believe it is encouraging for this indicator.
The downside pressure on the recent high flying technology and Internet stocks has helped unwind their speculative excesses.
The recent breakdown in interest rate sensitive issues (like the DJIU) appears to have stopped. They appear to us they are oversold and are experiencing an upward rebound. Many of the Financials (banks, etc.) are improving nicely.
Conclusion: Expect more of the same choppy behavior. As long as the DJIA and the S&P 500 remain above their respective primary and secondary support levels (See table below), risk appears limited. However, the "Stealth-like" nature of this market is expected to continue, necessitating careful stock selection. We will offer a large list of buy ideas when we feel that this corrective phase is completed. In the meantime, read the technical stock commentaries offered in the various sections below.
It is imperative that one watch key technical levels for any break downs or upside break outs within the leading averages (seen in the next paragraph) and within individual stocks (see the section entitled "Dow Stocks Revisited").:
Here are the technical levels that, we believe if broken, will indicate further upside or downside momentum:
Dow Jones Industrial Average
Primary Support 9063.26 (1/25/99)
Secondary Support 8676.03 (12/14/98)
Primary Resistance 9480.09 (1/20/99)
Standard and Poors 500
Primary Support 1205.46 (1/13/99)
Secondary Support 1136.89 (12/14/98)
Primary Resistance 1283.64 (2/1/99)
Nasdaq Composite
Primary Support 2289.90 (2/10/99)
Secondary Support 2206.19 (1/13/99)
Primary Resistance 2533.44 (2/1/99)
Russell 2000
Primary Support 396.95 (2/10/99)
Secondary Support 385.63 (11/17/98)
Primary Resistance 435.30 (1/20/99)
Source: Bridge Data Service
We are still concerned about the poor technicals surrounding the near term stock market outlook. Be very selective and watch the support and resistance levels carefully. In our opinion the choppy environment we have been anticipating is NOT over! We still see more deterioration ahead but once again we emphasize stock picking rather than market timing. |
