Better Late Than Never

At long last, volume showed up at the
party, er, rather the hangover.

It was the heaviest day of activity in
the Nasdaq since April 4, and your first indication that perhaps — just perhaps
— the throw-in-the-towel phase, aka the capitulation phase, has begun.

The Naz has now shed 51% top to bottom
through Thursday’s early-afternoon trough.

This easily outstrips its 36% drop in
’87 but falls short of the record Nasdaq scorcher of 60% during the January
’73-to-October ’74 period.

Six distribution days in seven
sessions, and seven in nine: something I don’t recall seeing.

Highlight among the bells: Cisco
(
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,
of late a sanctuary of choice for institutions.

After outperforming for over four
weeks, the stock lost 7% on turnover 75% above norm…it did find support at its
prior low of four weeks ago, but didn’t close especially well.

Even the defensives got hit.

One such number, Heinz
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, rose
to the top of its five-month cup on big volume.

Among other top-acting defensives,
Philip Morris
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failed on Wednesday’s breakout of a four-week range,
moving to a new high before encountering big volume and reversing.

Abbott Labs
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is another that
lifted out of a four-week zone to a new high Tuesday, then stalled Wednesday and
Thursday.

J & J
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broke out of a
sound, five-month base on major trade before failing.

Seeing as how the defensives have
provided some semblance of leadership recently, their inability to move out of
obvious consolidation areas is another negative.

Perhaps — just perhaps — the failing
action in the defensives and Cisco’s chunky markdown buttress the case that
Thursday’s elevated Naz volume suggests.

Intermediate-term traders in search of
low-risk setups, of course, remain in no hurry to buy anything at all.

If you are thinking of bottom-fishing
here, perhaps as part of your long-term investment account as opposed to your
trading account, I can only suggest sticking with the absolute highest quality.

As Wednesday’s yarn about the 35-year
West Coast market veteran ("One day, they’re not gonna come back")
illustrates, some of the most promising stocks will never bounce back from a
sell-off as serious as this.

In fact a company’s flagging stock
price can often be shrugged aside as being due to a macro event — such as a
bear market — when in reality it was the bear market that provided the cosmetic
mask for the real culprit: deteriorating company fundamentals.

Of course, in situations like this,
you won’t know the real reason for the stock’s sagging disposition until after
the bear market is over and it refuses to participate in the brand new bull.

Only then does it become clear that
something is wrong with the company itself.

But by then it’s too late.

The stock that you "absolutely
knew" had to rally a minimum of 25% from its 50%-off-its-high perch either
never rallied at all or fell outright.

And so in the next bull market you’re
left holding goods that were damaged under cover of the bear.

I learned this in ’87 by watching
Digital, a household name, drop from 200 to 150 to 100 to 50, stunning more than
a few.

The point here is that if you’re going
to bottom-fish for the long-term investment portion of your holdings, do it only
in the highest quality names possible, names in which you have the utmost confidence of
their existence and dominance of their niche three to five years hence.