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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Challo Jeregy who wrote (7934)	3/10/1999 6:19:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

Another feast for the intermediate speculator By Kevin N. Marder, CBS MarketWatch Last Update: 1:46 AM ET Mar 8, 1999 Columns & Opinion When I began writing "opinion pieces" for this Web site in 1996, I had two primary objectives. First, the analysis would be unambiguous. Over the years, I'd grown tired of reading commentary that tried to finesse the reader and be cute. I wanted to be direct. Second, if I was wrong, I'd say so. I've noticed that very few people in the investment community do this. Those that do are to be commended. And on this score, I was wrong on Feb. 10 when I said "...the distribution apparent in the Dow and in the individual market leaders over the past week is enough to know that the market has more downside action ahead of it." From that point, the Dow dropped 0.4 percent and the Nasdaq Composite fell 3.7 percent. I had expected more. How much more? I didn't know. I don't try to predict the extent of a move. I also said "the decision to hold a big hunk of cash was an easy one for the speculator." As it turned out, for every stock that broke out there were 20 that broke down. As money manager Gregory Kuhn said: "The aggravation-to-reward ratio was very high." Growth stock hibernation over However, in the past 10 days or so, I'd noticed a rash of speculative growth stocks beginning to show the early signs of serious accumulation. This is the most bullish thing a market can do following a selloff or period of weakness. This is the type of behavior that occurred in the fall of 1990, summer of 1993, early 1995, early 1996, spring of 1997, early 1998, fall of 1998, etc. Often there is one stock that busts out ahead of everything else at the outset of a fresh intermediate move in the market. In October 1990 it was Cisco. It took just eight trading days for the stock to get from its bear market low back into new high ground -- it took the Dow 129 days! I remember watching it happen and scratching my head trying to figure out what Cisco did. No one seemed to know about the company, which had gone public earlier in the year. And then in the five-week market advance of July-August 1998, it was Amazon that defied gravity by breaking out of a classic eight-week base five days before the Dow bottomed. For the sophisticated speculator who concentrates on moves of several weeks to several months, this was a loud signal that other Internet stocks would follow. After all, they, too, had shown classic signs of accumulation. Yahoo!, MindSpring, America Online, and other Web names followed with their own breakouts in subsequent sessions. With the present situation, eBay broke out of a seven-week base to a new high a week before Friday's Dow blast to new high ground. The point is that when you see a growth stock do the unexpected, i.e. break out on major volume when the market is doing nothing or even falling, that says something. And when you see other speculative growth stocks showing the same accumulation, it's time to look for a market turn. Friday's Dow breakout was the icing on the cake. The averages will move higher from here, with selected Internet stocks providing leadership. Big-cap technology is still in a bottoming process and will likely underperform for the immediate-term while the stocks work off the excesses associated with their heady runup from Oct. 8. As for the speculator, on Thursday, March 4 I'd said: "...a fleet of aggressive growth stocks are taxiing for takeoff, ready to be bought." Some of these issues broke out Friday, while others are waiting in the wings. The aggressive speculator, who understands the importance of cutting losses when wrong, will pounce on these as they break out. He realizes that now is not the time to be concerned with the shoddy breadth of the market's rally. Not when so many aggressive growth stocks are acting so well.