The Game Plan For Technology Stocks
Nothing has changed.
We continue to feel that the past 3-4 month’s action is not just a
garden variety correction. but a topping-out process that will continue to
frustrate the bulls. We have been telling you that oversold conditions or
not, any bounce will not last long and will be anemic at best. It is always
tougher to call short-term moves, but let’s start there.
All of our short-term indicators are oversold.
BUT…and here is a major difference you need to know. OVERSOLD IN BEARISH
PHASES ARE COMPLETELY DIFFERENT FROM OVERSOLD IN BULL PHASES. In bear phases,
oversold conditions get worked off by weak bounces and time. In bull phases,
oversold conditions get worked off by skyrocketing right back up to new highs
and even higher. All you need to think about is the difference between the
past few months and the last 9 months of last year. So, let me be clear. I
continue to believe any bounce from these oversold conditions will be
less-than-stellar and will not last. And keep in mind, oversold can become
more oversold.Â
Longer-term, this market may be in a world of
hurt. I know you have been hearing from the bulls that this is just a
correction but all our indicators are saying otherwise right now. For
starters:
We have been telling you for years that if there
is any one number that tells us about a market, it is how many stocks are in
good technical shape. When the market was going the “right” way, it was 8-9
out of 10 every week. During the past few months, it has been nothing but
deterioration in the numbers. In fact, I would venture to guess we are down to
3-4 out of 10…bearish numbers. I know what you are asking. If the numbers
deteriorated, why can’t they just start to get better? They can. It is not our
job to say where things are going to be down the road. It is our job to know
what is going on right now. If our indicators change, we will change with
them. All we want to do is stay one step ahead. As of right now, the topping
process continues and is gaining some teeth.
It is a clear cut warning that supposed good
earnings and strong economic news continue to be sold off. Remember, it is not
the news, it how the market reacts to the news. Also, remember  the market is
a discounting mechanism…a forecaster of the future. It basically couldn’t
care less what happened last week. So, when you hear everything is great and
the market is still going down, you now have a better understanding. In March
2000, there was no bad news. In fact, bad news on the economy and corporate
America did not come out until 2001.
It is a negative that mutual fund cash is down in
the 4% range. The last time it was this low was in 2000. It is also
worrisome to see so many secondaries soaking up liquidity.
Unfavorable groups are now swamping favorable
groups, in stark contrast to last year. On a weekly basis, this number has
been also deteriorating quickly. In fact, we are hard-pressed to find any
sectors we are excited with.
NEW HIGH/NEW LOW numbers remain horrid.
WORLD MARKETS are definitively going along for the
ride. Some have imploded.
Here are support levels you need to keep your eye
on…and some may disagree, but they all don’t have to break down at once. A
break of these levels will only make matters worse.
The DOW and S&P 500 at this past week’s reaction
lows…9852 and 1076 respectively. The DOW is sitting on the all-important 200-day average while the S&P bounced right off of it.
The NASDAQ is another story. It is now trading
below its 200-day average and has had a tough time every time it bounces into
it. This is another clear cut problem. Our main point for the NASDAQ is that
if it breaks last week’s lows, we may see waterfall-type action down to 1800,
the next area of support. While it is tough to mention things like that, we
feel that Friday’s action on the NASDAQ was very weak and almost felt like it
was giving up. Whether it breaks, whether it indeed does waterfall, it
shouldn’t change the game plan we gave to you weeks ago…and that is to own
no 4 letter TECHNOLOGY stocks until we see better action.
As I said Friday, the 50-day average crossed below
the 200 day average for the SOX. As you know, we have been telling you the SOX
was a great forecaster for the market…and it has not let us down as we
turned bearish on the SOX before anything else in our January 16th report. I
remember seeing this occur on September 29, 2000. You know what happened after
that…and off the beaten path, valuations are still a comedy act for many
SEMICONDUCTOR names.
Lastly, and on a potential positive note…yes
there is one. We believe the BOND MARKET is done with this leg down. Friday’s
action feels like the near-term low. If we are right, expect to see some of
the bombed-out INTEREST-RATE sensitive areas to bounce along with it. Groups
like REITS, UTILITIES, HOUSING, MORTGAGES and the like may see a bid. But, any
bounce would not change the longer-term tops these areas have put in. If this
is to be a real low, there will be plenty of backing and filling to work off
all the damage.
Sorry for the long missive but we are determined
to stay ahead of what we believe will be more trying times to come…and don’t
even get me started on 2005.
Gary Kaltbaum