Are Things Starting To Improve?

  • February 18, 2003
  • Gary Kaltbaum


Before I get into the shorter-term picture,
let’s first go over the longer-term. Simply put, nothing has changed.
Longer-term, the bear market which got under way in March 2000, is still not
over. I say this for the same reasons I have been talking about for…it seems
like years.


  1. Most sectors in the market remain in poor technical shape.


  2. All major indices continue to trade below their 50- and 200-day moving
    averages. The last major failure for the indices happened right below the 200
    day average.


  3. World markets remain mired in worse shape than the US. ( In a moment, a note
    on Japan.


  4. Approximately 75% of stocks are trading below their 50 day averages.


  5. FINANCIALS continue to act poorly.


  6. The number of blow-ups we have been seeing is not a sign of a healthy market.


That’s all the bad news…but you already know all that by now. Shorter-term,
things are starting to improve. Yes, there is some good news near-term. I am not
talking months or even weeks when I talk short-term. Keep that in mind…and
that’s why I do bi-weekly commentary.


At 2:30 p.m. ET on Thursday, the market said that it had enough of the downside.
It reversed to the upside. As I explained to you before, reversal days occur
when the market is way down on the day…only to finish up. This usually leads
to upside testing. Stocks had been oversold for days…just based on price. An
exercise you may want to do is to go through a ton of stocks and see how far
they are below their 50-day averages. In a good market, when stocks get too far
from  this average, they pull back towards them. In a bad market, they bounce up
into them.


I would have loved to see more volume and a higher spike in the
VIX
(
$VIX.X |
Quote |
Chart |
News |
PowerRating) to tell me the reversal
could be a more meaningful one, but in any case, the market will take it. A
higher level of volume and the VIX would have indicated much more panic
selling….leading to a stronger, more meaningful low. When sellers “throw in
the towel” at any price, stronger lows ensue. Let’s just call this a near-term
low. It is also a short-term positive that put/call figures have stayed
relatively high and for a change, the “wrong-way crowd” went a little more
bearish as the percentage of bullish advisors went from 47% down to 40%. It’s
about time.


But don’t get all excited just yet. I do believe for a more meaningful low, the
market needs to get more “washed out” or “worn out.” As I said earlier, this
latest action does not resemble the July and October low in sentiment or volume.
I would love to see a few  months of retesting the July and October lows. So,
let’s just call this a pause in the ugliness. I would not give it any more
weight than that.  In any case, when a market comes off a low, I go into
“follow-through day” mode.


Starting
Wednesday…which would be the fourth day from the recent low, I will be looking
for a follow through which would include a good gain on an explosion of volume.
Some people look for 2% gain or better. I am good with a little less. If one
occurs, we then go into “breakout” mode. That’s where I start looking for stocks
in the best technical shape. Of course, if I start buying, I go into “close my
eyes, hold my nose and pray” mode as most breakouts continue to fail. One day,
they will start to work. I just hope I am still around at that time.


The best charts…believe it or not…continue to be in low-priced, left for
dead WIRELESS, TELECOM and
INTERNET stocks of the prior bull market. I don’t even want to mention
their names. Just make sure you have a good stomach for them…but so far…so
good.

A note on Japan

Speaking of retesting the lows. If you want to know what kind of low I would
want to see, take a look at Japan’s action of the past five months. The
NIKKEI 225 has bottomed on four separate occasions
at the 8200-8250 level. Every time the market revisits that low, it pulls up its
bootstraps. I am not saying this is the end of the bloodbath the Japanese market
has had, but I thought it important to point out what a good low would look like
when it did happen.  A move above 8830 will let the NIKKEI head for late
November’s highs at 9320.  Now go back and compare the lows for our market…two
“V” bottoms that usually do not work.



Gary Kaltbaum

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