Little has changed
Little has
changed since the last update of this column a week ago. The major
averages have shown some light distribution, but nothing out of the ordinary
given the monstrous run-up off the Oct. 18 lows.Â
A lot of traders, particularly those
with a short-term focus, religiously follow overbought/oversold oscillators. The
problem is this: When you’re dealing with a longer timeframe such as the
intermediate-term (several weeks to several months), these indicators can throw
off plenty of false signals.
I ignore overbought/oversold oscillators
in favor of watching the action of the market itself. What’s the tape saying
right now? In particular, how are the major averages and individual leaders
acting?Â
The Nasdaq did see some distribution on
Wednesday and Thursday via increased volume and little price change. But it’s
too early to get concerned about this. Over in the S&P, things have been
similar, with just a couple of distribution days in the past two weeks. Ditto
for the Dow.
At all times, it’s important to watch
the tech bellwethers. These are institutional favorites and give a good clue as
to the sentiment of the game’s biggest players. In any advance, the more of
these names that lead, the better off it is for the general market. As an
example, the short-lived market advance of June-July 1998 occurred as only five
senior techs came under extreme accumulation. Currently, a lot of benchmark
techs, including Cisco [CSCO>CSCO], EMC [EMC>EMC],
Ericsson [ERICY>ERICY], Hewlett-Packard [HWP>HWP], Lucent
[LU>LU], Microsoft [MSFT>MSFT], Motorola [MOT>MOT],
Nortel [NT>NT], Oracle [ORCL>ORCL], Sun
[SUNW>SUNW], and 3Com [COMS>COMS], are acting well — a big
plus.
On the other side of the coin, Dell
[DELL>DELL], Intel [INTC>INTC], WorldCom [WCOM>WCOM],
and Tellabs [TLAB>TLAB] are behaving poorly.Â
As for color=#008000>cyberstocks, it’s very difficult to get bearish on
the group when benchmark names like AOL [AOL>AOL], Yahoo!
[YHOO>YHOO], Amazon [AMZN>AMZN], and CMGI [CMGI>CMGI] are
acting so well, busting out of bases on big volume.
Among other breakouts last week: Ciena
[CIEN>CIEN], Digital Island [ISLD>ISLD], Echostar
[DISH>DISH], Entrust [ENTU>ENTU], Gilat
[GILTF>GILTF], Immersion [IMMR>IMMR], Lycos
[LCOS>LCOS], Metasolv [MSLV>MSLV], Ravisent
[RVST>RVST], Symantec [SYMC>SYMC], Twenty-Four/Seven
[TFSM>TFSM], Wal-Mart [WMT>WMT], and WebTrends
[WEBT>WEBT]. That so many growth stocks continue to prance higher on solid volume is bullish for the market as a whole.
Putting it all together, the major
averages and leading stocks are showing trivial distribution, and nothing
worrisome. Normally, a market won’t put in an intermediate top just six weeks
after a follow-through day such as we saw on Oct. 28. Finally, the sheer power of the
eight-week liftoff suggests that the inevitable pullback won’t be
extensive.
Setupscolor=#000000 face=”arial, helvetica” size=2>: CNET
[CNET>CNET], New Era [NEON>NEON], Liberate
[LBRT>LBRT].
At press time, Kevin N. Marder held
long positions in AOL and Amazon.com.