Bulls Hopeful, Picture Still Murky

• June 28, 2002
• Dan Chesler

Lately I’ve been pounding the table on the subject of
“multi-month” topping patterns in the big-cap stocks.
These are the stocks that have remained more or less intact in broad
trading ranges for the past two to four years.
Examples include Pfizer
(
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PowerRating), IBM

(
IBM |
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PowerRating), Wal-Mart

(
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PowerRating) and Home Depot
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PowerRating). By comparison, stocks such as
Yahoo!
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Microsystems
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PowerRating), AOL-Time Warner

(
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PowerRating), Oracle
(
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PowerRating), AT&T

(
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PowerRating) and EMC
(
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PowerRating) seem to
be in cruel, bottomless pits.

My suspicion is that the market excesses of the past 10-plus years will not be completely worked out of the system until the last
remaining “safe” stocks from the first list take on the appearance of
stocks from the second list. Over
the last two weeks we have come very close to “breaking the back” of some
of these big-cap names, only to be rescued by the skin of our teeth starting
with Wednesday’s intraday reversal on heavy volume. As discussed in my previous column,
we got some signs of a possible respite in the bear trend on Wednesday. In order for me to become bullish, however, I need to see a retest that
holds above Wednesday’s low, and/or a show of strength in the form of a
significant rally in breadth and price momentum — i.e., the basic elements
of a base. 

Keep in mind that the longer-term topping patterns I keep
mentioning have not gone away; they are still very much on my mind. The main trend is also still down. 

Depending on how the market closes Friday, I’ll
probably be looking for shorting opportunities in the broad indexes next week. I’ll keep you posted if and when I issue any trades. I also want to watch the relative performances of the following
sectors: Semiconductors
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PowerRating), Biotech
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PowerRating), Financial
(
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Broker/Dealers
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the leadership groups that will need to emerge if we are establishing anything
more than a temporary bottom. Since
Wednesday, these sectors have slightly outpaced the broad indexes to the
upside. 

I covered
Newmont Mining
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in my nightly service on Wednesday. The
gold index is breaking down out of a bear flag on the daily chart and looks
like it could still go lower. In
the strong defense sector
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$DFX.X |
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PowerRating), one chart I’m watching is Orbital Science

(
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PowerRating), which has a very nice weekly pattern. A high-volume break above resistance, at around 8 dollars, would give
us targets over 12. See charts
below.  

Have a great weekend.

Dan