Monday, April 10, 2006

The Return of Johnny One-Note

Last week, I tried to buy the bullish argument. I really tried. I even made a few suggestions on stocks. But I just don't buy it. This market, it seems to me, is too weak to do what the bulls want it to do.

The post-bear market recovery that started in October 2002 and continues to this day have pushed some stocks hundreds - even thousands - of percent higher. But as I look at all the major averages and hundreds of different major stock charts, I cannot escape one simple conclusion: even if I wanted to buy, there's just really not much good "merchandise" out there. It's far easier to find stocks prone to fall than it is to find stocks prone to rise more.

Let's take a look at the latest charts of three major U.S. averages. First, the Dow Jones 30. In order to get truly bearish, it needs to break its short-term ascending trendline as well as its medium-term ascending trendline. This index has been inching up for the past six months, and it has the potential to keep doing so unless both of these trendlines are clearly broken.

Next is the NASDAQ 100, which has been weaker than the Dow over the same time period. This index has, over a three month period, formed a modest saucer pattern, but it's relatively wimpy and the prices simply aren't pushing strongly higher. If this pattern collapses, I think it might mark the turning point.

Lastly is the all-important S&P 500. The ascending trendline, representing resistance, is easy to see here, and recently it was pushing up against this trendline. Prior attempts to push past it have failed, and after last Friday's swoon, I think the hope for any big breakout is fading. Anything short of stellar Q1 earnings in the market could mean the end of what has to date been a fairly steady advance by the market over the past three and a half years.


Kapil Khanna said...

You keep trying to make a case for a slump. Why dont you just wait for it to actually turn? Trust me, when it does, there is good potential on the downside. Markets do what they have to, not what you think they ought to. :).

John Wheatcroft said...

I can point to about 5 periods in the past 9 months that look just like this one. And following each there was a brief correction then a swoosh right back up and past the previous "can't go any higher point." In fact I have made most if not all of my profit over the same period during those events.

I can't make money on the long side in this market and I consider it too treacherous to go on the short side. Especially for those stocks that "look like they should go down." Just as soon as you put a trade on one of them Jimmy says - buy buy buy and sweeps your stops or vice versa. One of these days a bunch of shareholders is going to class action him for his "sell sell sell" based on some misinterpretation he has made of the tea leaves causing a steep drop in a good company and that will be his undoing. I'm surprised some sharp lawyers haven't already started the process. But that's another subject for another day.

I too want a pull back from the current top so I can start making money again. But never forget "energy" is "liquidity" and as long as Helicopter Ben is in the driver's seat - look out above.

PB said...

Hey Tim: would you be able to show a chart or two of the last time stocks were in a two year funk like this? I mean the major indexes seem to have flatlined for over two years now? In the past, how did this play out? Thanks