What’s Most Important Now

July 16, 2002
Tim Truebenbach

Picking a direction has been difficult
to do, since long positions donâ€™t stand much of a chance and short positions
have had to deal with a daily “squeeze.” As exciting as it has been to
watch, it has not been very conducive to participate in on an intermediate-term
scale. The most important things to do have been to rely on the price-and-volume
action of the major indices. They have produced solid evidence that we are in
fact moving lower, and owning stocks is not the best place to be.

How long until we bottom? This
question is best answered by historical precedents and by turning towards
secondary indicators. The VIX
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has been moving in the right direction: higher.
It currently stands at 41, and most major bottoms have happened around 60.
Investment advisors bullish vs. bearish is also moving in the right direction,
but a bottom would be
marked as these two “flip-flop” and bearish advisors
exceed bullish by a nice margin. At this point, it looks like the
market is going to trudge around, or even drop further, before anything
significant happens. It may resolve these issues over the next week or so, but
then again we may be a few months away. Only time will tell.

Another solid indicator to look
towards is in the way of market leadership of industry groups and individual
stocks. Recently, the defense group hit a wall and has been hit pretty hard.
This can be seen through one of its best-performing stocks: Lockheed
Martin
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For now, the landscape reminds me of
what things looked like in early 2001. The weekend research doesnâ€™t produce a
whole lot. Of course, for those who donâ€™t remember, following the early 2001
dry spell, Spring of 2001 produced a very profitable time in the midst of a what
turned out to be a Bear Market Bounce. Krispy Kreme
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to mind as two great winners during that time period.