Monday, November 21, 2005

What's Next for the Bulls & Bears?

These are the times that try bears' souls!

Between the "decennial" magic and this bullish time of year, bears are getting smushed. Some major indexes are reaching highs never seen before - - ever! Examples include the very important Dow Transports ($TRAN), the MidCap 400 ($MID) and less known but still important indexes like the Morgan Stanley High Tech 35 ($MSH) and the Morgan Stanley Internet ($MOX). These last two look extraordinarily bullish.

The Dow Jones 30 ($INDU) is only 180 points away from the psychologically important 11,000 level. The last time it got close, earlier this year, it turned tail and ran. Clearly if it manages to get onto the other side of 11,000, it will be extremely heartening to the bulls (big, round numbers make for great press).

I still believe - yep - that the market is ultimately in for a huge tumble. But you can't argue with the prices and the strength. This market has been powerfully strong since October 11, and there aren't any clear signs of it abating for any technical reason in the near term.

I am not seeing a huge quantity of individual stocks that look like great buys. Once exception is Quest Communications (symbol Q) which has a beautiful - - albeit slanted - - inverted H&S pattern. Notice, too, the handsome increase in volume in recent months:

The $MOX, mentioned earlier, sports a similar pattern, although it's so level you could do carpentry on top of it:

One cautionary note for you bulls out there - the VIX has, naturally, descended given the market's rise. It has reached a level not seen since July of this year, which was a high water mark for the market. I've highlighted the area of the VIX when it bottomed out and, subsequently, the market went into a sustained dive.

One short that has done quite nicely for me is PetsMart (which I've mentioned once or twice before). It's a beautiful head & shoulders pattern which has ascended to touch its neckline and, starting today, is moving away from it.

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