Four Good Reasons Why The Bulls Aren’t Scared

  • October 30, 2003
  • Rob Hanna


Halloween may be the scariest time of year,
but the bulls don’t appear too frightened right now — and with good reason. As I
like to do at the end of each month, I’ve outlined below my observations about
the market:

  1. Foreign markets —
    The majority of overseas markets have been rallying nicely as of late. Most
    of them are at or near new highs. Japan had a scare last week with a sharp
    selloff, but has rebounded nicely since them. The one glaring exception is
    Russia, whose stock market has been rocked by scandal recently.

  2. New High vs. New
    Lows     — Mark Boucher’s New High List has been
    delivering solid readings for the last few weeks. The new low list has been
    nearly barren for a long time now. This type of upside breadth is certainly a
    positive for the market.

  3. Expanding watch list
    — The number of quality stocks setting up in new
    bases has been consistently strong. As new breakouts have occurred,
    additional stocks have set up and replenished the supply. Over the last
    several weeks there has been no shortage of tradeable stocks.

  4. UUWNHI
    (Unofficial, Unscientific, Working/Not Working Hanna Indicator) — As earnings
    season has unfolded there has been some terrific breakouts and there have been
    some terrific failures as well. Companies that have reported disappointing
    earnings news have been punished severely.

    Overall, though, earnings have been solid and for every leading stock that has
    taken it on the chin, there seems to be two that have soared. Though volatile
    and somewhat sketchy, the performance of breakouts overall has been a
    positive. Pullbacks have also been buyable, as support in the indexes as well
    as many individual issues, has held nicely. From a short selling standpoint,
    breakdowns have been scarce.

    Most of the breakdowns that have triggered have had poor follow through. Most
    potential topping patterns among both indices and individual names have not
    followed through, as support has held nicely. For many, daytrading has been
    challenging due to the fact that intraday trading ranges have narrowed
    significantly over the past several months. While notable, I don’t believe
    these contracted ranges say anything about the health of the market.

Neutral —

  1. Accumulation/Distribution —
    Both the Nasdaq and S&P have been spotty as far as accumulation and
    distribution go. (See Nasdaq chart below.) Today was a distribution day for
    the Nasdaq. This always bears watching, but evidence has not been
    overwhelming in either direction lately.


Negative —


  1. Sentiment — Sentiment indicators are signaling that everyone is overly
    bullish. Frankly, I’m having a hard time remembering the last time readings
    weren’t “overly bullish”. When I look at all the positives in the market
    listed above, it seems to me there is plenty of reason to be bullish. So
    while sentiment is certainly not helping the market advance, it doesn’t appear
    to be have been a major hindrance thus far.

Overall, I believe the market
is looking quite healthy. The last seven or eight months have provided many
opportunities to profit on the long side of the market. I’m a big believer in
doing what works until it stops working.

The two most important things to look out for are:

  1. Watch how the market responds
    on any pullbacks towards the 50-day moving average. Each time the Nasdaq or
    S&P has pierced this line they have found support and begun to rally within a
    day or two.

  2. Keep an eye out for
    distribution days. Sustained institutional selling can kill a market rally
    very quickly.

Happy
Halloween,

Rob Hanna


robhanna@rcn.com