The End of the Trend is Near
Webster’s II Riverside
Dictionary defines a parabola as “a plane curve formed by a
conic section taken parallel to an element of the intersected cone.”
You
got that? Huh?
Here’s a better definition.Take a look at the graph of the
Nasdaq Composite. Following a well-defined, upward trend channel over the past
seven weeks, the Composite has accelerated straight up this week, breaking above
the top channel line. Make no mistake, unless market history has completely gone
out the window, this climactic action typically occurs in the final stage of an
intermediate-term advance. Is it over tomorrow, next week some time, or early
January? I don’t know. We’ll leave that up to the market. But it certainly feels
like the end of the trend is near.
Wednesday’s market was the tale of, not two, but three tapes:
the broad NYSE market closed down (what else is new), the broad OTC market was
down (now there’s something a bit different), but the concentrated list of high-
fliers kept on flying high. CMGI [CMGI>CMGI] is going parabolic, Yahoo!
[YHOO>YHOO] won’t be denied, and continues on its tear, and Broadvision
[BVSN>BVSN] – good Lord, that thing is still moving higher – appears set to
rocket one more time. Amazing!Â
Nonetheless, the S&P 500 and the
Dow appear ready to break out to new highs from their bullish cup-with-handle
basing patterns. So the technical action in this area continues to look healthy.
A breakout soon on strong volume would validate this technical set-up. However,
a breakout, even on strong volume, followed by a sharp pullback into the basing
area would not be a good thing. This bears watching. Moreover, there are still
some growth stocks breaking out from sound basing patterns. Qlogic
[QLGC>QLGC] broke out from a cup-with-handle basing pattern Wednesday, though
volume was not that heavy, while Redback Networks [RBAK>RBAK] broke out from
an 11-week base on increased volume and Affymetrix [AFFX>AFFX] followed
through to new highs on good volume following its 14-week, cup-with-handle
breakout on Monday.
Although the
intermediate-term advance that began in late-October feels like it’s nearing
completion, until the market’s leaders run out of steam and the baton stops
getting passed onto the next leader, the market will remain on solid footing.
Bear in mind, though, the kind of rise going on in some leading issues, like
CMGI and Yahoo!, won’t go on ad infinitum. If you’ve been riding some of these
high- flyers it’s time to begin nailing down your profits. Blow-off advances
don’t give you a whole lot of time to abort before worthwhile gains turn into
okay gains.