Technical Analysis?
If you haven’t already read Larry Connors’ weekend
commentary, please do. I loved
it. You see, I have been told for years that technical analysis does
not work…market timing does not
work…reading chart patterns does not work.
That’s great. The more I hear it, the more I know I am on the right
track. When all the doughnutheads of the world
decide that what we do works, then
I will get worried.
You see, it’s easy to write books titled “DOW
100,000″ and “DOW 36,000.” Of course,
they come out at the top of the bull market.
It’s easy to come out with a full page ad stating a target
price of 1800 on the S&P 500
for 2002. That came from Ed Kerschner of UBS Paine Webber. Yes, he
still has a job.
It’s easy to say you had it right even though you missed
the worst bear market in 70
years…just like Abby Joseph Cohen did.
It’s easy to get on TV and call the bottom four months ago
at the exact time the Dow and
S&P 500 were topping…and get invited back on TV only to try and
call another bottom like Barton Biggs has
done. He gets paid millions. Oh yeah,
he also missed most of the late ’90s bull market.
It’s easy to call the bottom just like Laszlo Birinyi
did…a couple of months ago. I
am particularly singling him out because in his last two Forbes’
columns, Mr. Birinyi also says technical
analysis doesn’t work. I will not let him
get away with this. Mr. Birinyi has changed his stance on technical
analysis more than Al Gore has changed his
stance on Iraq. First he is fond of
it…then it doesn’t work…then he is fond of it. Mr. Birinyi, please just
keep doing what you are doing.
I think these people just don’t get it…or just don’t
want to get it. They would
rather listen to someone giving out target prices and telling you “don’t
worry, everything is OK. It’s a good company. The stock will come back.
Think long term.”
I believe it has to do with the “hard work”
factor. Technical analysis takes time, sweat and a lack of ego. It takes years
of study, years of practice, years
of mistakes. I have not met too many people that are willing to spend
the time that O’Neil did when he decided to
study 30 years of winning stocks.
I have not met too many people that will go through
thousands of charts like Stan
Weinstein. These are the people I patterned myself after. Most of the
people I have met in this business are not
willing to pay the price for success.
Thus, they do the “Psychic Friends Network” routine.
Oh…I forgot, my report.
Nothing has changed. The waterfall I told you would happen
is at hand. I would keep the
defenses up, as once again, I believe this drop only ends with a
panic-type selloff, not unlike what happened into the July 24 low. I use
the term waterfall because it sounds so much
nicer than crash. This would be caused
by some really bad news…a big earning warning, more accounting problems
or even — and I hope it doesn’t come to it — war!
Here are a few things I will need to see to tell me this
leg of the bear market is over.
- A huge, high-volume reversal day to the upside. I would
love to see a day where the
market was down 200-300 points…only to finish close to even or up
on two-billion-plus shares. - Put/call readings above 1.20. Put/call readings were
above 1 a couple of weeks
back, to no avail though. - A VIX reading above 60, 70, 80, 90…do I hear 100?
Let’s just say — the higher,
the better. - Bull/bear numbers get much more bearish.
A few other notes.
NEGATIVES:
The Dow and S&P 500 are now tracing out reverse cup
and handles. Many Dow charts
look like absolute horror shows and look lower.
There are a whopping three sectors that look OK here: GAMING,
HOSPITALS, SCHOOLS.
Hardly any stocks breaking out.
Volume on rallies, for the most part, has been lackluster,
while volume on selloffs has
increased.
POSITIVES:
Unlike the drop into the July 24 low, which took
everything down, there are many
names that are showing decent strength vs. the market. These are the
names you concentrate on if the market ever
decides to go up. You need to find
these names that are within 10% of their yearly highs and keep them on a
watchlist. Names like
(
TTWO |
Quote |
Chart |
News |
PowerRating),
(
BYD |
Quote |
Chart |
News |
PowerRating),
(
ERTS |
Quote |
Chart |
News |
PowerRating),
(
BSX |
Quote |
Chart |
News |
PowerRating),
(
IGT |
Quote |
Chart |
News |
PowerRating),
(
AZO |
Quote |
Chart |
News |
PowerRating),
(
APA |
Quote |
Chart |
News |
PowerRating),
(
PETM |
Quote |
Chart |
News |
PowerRating) and others
are leading the way. This
doesn’t mean these names will continue to lead. I only deal
with today.
The NEW LOW LIST, while recently expanding, has not come
close to the numbers of late
July. This is a positive divergence…so far.
No matter what, my longer-term stance (which continues to
play out nicely) remains the
same. If I am right, we are now in the midst of a secular
bear market with mini bull markets. This is a complete 180° from the
years 1982-2000 where we had a great bull
market with mini bear markets. If you
can get hold of Friday’s USA TODAY, I was written up on page 3B for
just this thought process.