Of Fish & Birds
A nondescript way to
end another forgettable week.
Friday, it was just another day of
deconstruction in the growth segment…Agile
(
AGIL |
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PowerRating), one of the more
constructive vogue names (this is a bear market, hence my loose interpretation
of "constructive"), was shot down out of its pattern on volume.
Comverse
(
CMVT |
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PowerRating), another stronger
issue, was another casualty.
One of the things that you, as a
medium-term specialist, want to be on the lookout for is a similarity in
patterns among the leaders.
As with plenty of things in life,
there is strength in numbers.
Seeing a whole group of stocks with
some sort of common denominator do the same thing on the tape will, over a
period of time, lend credence to what each individual stock itself is doing.
Kind of like observing a school of
fish in the ocean.
The fish cling together as they groove
with the current, bound by some sort of unspoken agreement.
Sure, two or three may dart away from
the pack for a period.
But sooner or later those few will
rejoin the other 48 in the direction that the current is taking the entire
school.
The school will then continue in the
same direction until some larger force, perhaps a shark, causes the group to
fragment in disparate directions.
For some time now, you have seen the
speculative growth stock glamours put in topping patterns.
Of course, you never know that a top
is a top until after the fact.
The first hint was the elevated
volatility, the wide swings from high to low their initial symptoms.
The second was the distribution days
in these names.
Like the school of fish, nearly all of
these shares were pulled by the same fundamental current.
In this case, that current was an
economic slowdown that rendered rich-multiple names in the networking, optical,
storage, and chip spaces, among others, uncool.
Uncool, as in lines being drawn in the
sand by institutions unwilling to pay the steep multiples accorded these stocks.
If you look at these stocks day in and
day out, you will notice that the same overall chart pattern applies to each.
Sure, there are differences as to
timing.
For example, Broadcom
(
BRCM |
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News |
PowerRating) may
have peaked earlier than the others (on Aug. 24) before printing a lower low
(confirming its downtrend) on Oct. 10.
Whereas, the stronger Juniper
(
JNPR |
Quote |
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News |
PowerRating)
didn’t peak until Oct. 16, then printed a lower low on Nov. 13.
Contrast these to Siebel
(
SEBL |
Quote |
Chart |
News |
PowerRating),
which peaked Nov. 6 and has yet to put in a lower low.
The moral: Timing differences
notwithstanding, birds of a feather eventually flock
together.
By extension, your ability to
recognize pattern similarities among stocks with a common denominator will
greatly aid your results as a trader, allowing you to better pinpoint bottoms
and tops as they occur in individual issues as well as the general market.
For instance, seeing a batch of
glamours tracing the same topping pattern should make you wary about the odds of
one of the last of the holdouts taking off anew.
Otherwise, the market’s "good
news" — which is what should keep intermediate traders "going"
each week — is that utter washouts such as we saw in ’87 and ’90, and as we’re
seeing in ’00, usually lead to big opportunity.
This is as they clear the decks of the
froth that was their undoing in the first place.
Editor’s Note: On
occasion, Mr. Marder updates this space after the initial posting. Refer to the
timestamp on the home page or at the top of this space to see if there has been
an additional update.