The Good – And Not So Good – In This Market
In my last few reports, I have told you to watch the SEMICONDUCTORS
like a hawk. This sector has been leading the market both up and down…mostly
down, over the past three years. Well, as of this second, the move is up. Let’s
talk about the good, and end this report with some caution.
First
off, the market is shaping up. The Nasdaq…which never even got close to its
July/October 2002 lows…is poised to break out of this wicked trading range it
has been in for several weeks.
Of course, the impetus
is the move the Semis are having. A close above 1430 will lead the Nasdaq first
to January’s high at 1467. The Nasdaq 100 is already near January’s high of
1100. A break above that would be a big positive. The S&P’s breakout would occur
at 905. The Dow is lagging because of a few weak names. I always give less
weight to the Dow because it contains only 30 stocks.
Other positives:
The nine-month basing process at or near the lows has made bases longer…thus
stronger. I have always told you that bottoms form over time and at or near the
same price. A look at the NYSE chart shows the market hit the lows three times
within a stone’s throw of one another.
I am
finding more longable charts than shortable for the first time in many
months…or is that years? The same goes for sectors.
Advance/decline figures remain in good shape…but just keep in mind that
advance occurs if a stock goes up 1 cent. Up/down volume also remains in
terrific shape.
So…things are improving and as more and more stocks break out, you will get
more and more of an indication that this may be the first good intermediate-term
rally since the top back in March 2000. Keep a close watch on the
NEW HIGH LIST every day for signs of improvement
not only in numbers, but in quality. Continue to scan the volume leaders on a
daily basis, as every good move in the market starts with a surge in volume.
OK…so that’s the good. I could not leave out the other side of the coin…and
that is the sentiment picture. The sentiment picture is one of the worst I have
seen in a long time. Every one of my sentiment gauges is flashing
bright red right now. These sentiment indicators
are contrary indicators…meaning if everyone is bullish…you go the other
way. Well, everyone is bullish. If I just looked at sentiment, I would be the
biggest bear on Wall Street…but sentiment is a secondary indicator. I care
about price and volume first. I also care about how stocks react to the news.Â
The bulls are running.
Here are
the measurements I look at.
The VIX, VXN, QQV have all plummeted. What is amazing is that they have
plummeted while the markets have basically stood still and stayed range-bound.
Plummeting volatility indexes usually occur as markets skyrocket up. This leads
to the question on whether this potential breakout is going to fail once again.
The
VIX
(
$VIX.X |
Quote |
Chart |
News |
PowerRating) is now below where it was on
January 10 right before the Dow dumped 1300 points. The VIX is also coming close
to approaching its lowest levels in four years. The numbers are worrisome. The
last three times we approached those levels were:
-
3/29/02…the Dow then went from 10,400 to 7530 in 16 weeks -
7/6/01, the Dow went from 10,252 to 8062 in 11 weeks -
9/8/00, the Dow went from 11,200 to 9800 in four weeks.
The VXN
and QQV (which measure the Nasdaq and Nasdaq 100)Â are no better. The VXN is at
levels not seen since late 1999…just a couple of months before the Nasdaq
started its bungee jump. Other sentiment gauges that scare me:
Bullish advisors 50%…bearish advisors 30%. I am sorry. This is not a good
number.
Nine out of 10 interviewees are bullish and big-time bullish on
TECHNOLOGY.
Put/call figures are now very low. No one is out insuring their portfolios
against the downside. There is an absolute lack of worry despite a market that
has been range-bound.
Lastly, I am now hearing talk that in bull markets, these measurements don’t
matter and could go much lower. We shall see.
No matter what, take your time and always protect your capital. If the markets
break out of this range, that’s great. But it will not be a straight shot. There
remains a ton of resistance all the way up. If this is for real, you will have
plenty of time.
Gary Kaltbaum