Market Uses Up Its ‘Get Out of Jail Free’ Card

March 26, 2001
Goran Yordanoff

Al
Czervic (picking up a white golf hat at the counter): “This has got to be the worst-looking hat I’ve ever
seen… I bet if you buy this you get a free bowl of soup.”Â

(Looks over at Judge Smales across the counter who is wearing the exact same hat)Â

“Oh! (rolling his eyes) It looks good on you, though.”

— Scene from Caddyshack. Al Czervic (Rodney Dangerfield) in the pro-shop at Bushwood
Country Club.

Not much has happened from a fundamental perspective from last Friday to
today. In the news, we have yet more earnings warnings from technology companies and yet more layoffs. In addition, we are beginning to hear major
technology CEOs begin to discuss the likelihood the fabled “second half recovery” will not take place. Wow, they must have graduated at the top of
their class to have figured that one out by now.

CNBC has been parading out every Bull they can get their hands on to help fuel the current bounce and give the bottom-fishers and speculators more of
what they want to hear. I learned something a long time ago and it was a
most painful and expensive lesson indeed………the lesson is: The Market doesn’t do what you want, wish, or pray for it to do, it does what it wants
to do and it does it when it is darn good and ready to. So you see, there
is no validity to anyone who is claiming we have bottomed just as there is no validity to someone who is insisting that we are going lower. The market
will do what it wants… and it will do it when it is good and ready to.

Perhaps, however, we can forget about all the opinions and the hype about the future. Let us look at what the market is showing us right now:

As you can clearly see, the Nasdaq Composite opened this morning near its
highs and closed near its lows….not good. In addition, it was unable to close above a bearish candlestick from last Tuesday. By strictly looking at
this chart, it appears as if the Nasdaq Composite will experience some short-term weakness over the next trading session. Longer term, it is too
early to draw any conclusions.

Now, on to the index which was voted by Art Cashin as “most likely to explode through 11,000 and never, ever pull back
again,” the Dow Jones Industrial Average. I’d like to analyze two different timeframes here:

The daily chart of the Dow is showing us an inability to close above last
Wednesday’s high, which was a very bearish candlestick. In addition, the fact that the Dow had run nearly 600 points by lunchtime today from its
session lows last Thursday may be clear evidence that we are experiencing a reflex rally. These types of rallies are usually very fast, very fierce,
very exciting, and very, very prone to failure.

An examination of an intraday chart of the Dow shows us something else:

This intraday chart shows us that the DJI has recovered almost exactly 50%
of the decline it suffered from its 3/13 highs to its 3/22 lows. The quickness and fierceness of this rally has relieved a lot of worried faces on
Wall Street, but do they really expect us to believe that the worst is over?

Now, onto the sector voted “most likely to be hiding a potential disaster,” the S&P 500 Banking Index.

This sector has been trading extremely poorly over the past month and the current rally from lows should be viewed as an opportunity to consider short
sales into resistance zones.

The market has clearly been patting itself on the back for the past three
session for its narrow escape of catastrophe last Thursday. Whoever or whatever entities pulled the Dow up from its 9100 lows only two sessions ago
deserves an Academy Award for “Best Short Story — Fiction.”

The Nasdaq has absolutely no leadership at this time and I would caution anyone who feels inclined to fabricate one in their heads to justify long
positions at this time. There is a time to play, and there is a time to protect your money. Guess what time it is now?

Goran

P.S.. The Rodney quote was done for a loyal reader by the name of Herb P. Hope you liked it, buddy.

Market Uses Up Its ‘Get Out of Jail Free’ Card

BUY THE FEAR, SELL THE GREED

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