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I don't in any way disagree that there are very serious warnings for long
term investors. In a nutshell, I think that the risk/reward in the US market
from current levels is exceedingly poor as shown on the historical channel
chart of the S&P 1928-1999:
* approximately 25% upside to the top of the upper channel (1500-1600)
plotted from the 29 top
* approximately 50% downside to the mid channel (610-620) plotted from the
37 top
* approximately 85% downside to the bottom of the lower channel (200-210)
plotted from the 32 and 42 bottoms
Along with many other technicians who study price formations and patterns, I
consider Edwards and Magee classic tomb, Technical Analysis of Stock Trends
(1st edition 1948 now in 6th edition NY Institute of Finance) to be the
authority in defining bull and bear markets. E&M is quite clear in stating
that non-confirmations do not a reversal make. Quite simply, a lower
intermediate reaction high is required before a bear market trendline can
even be started. To date we have yet to break the bull market trendline much
build the required lower pivot high in the major averages.
Certainly the strong US economy, strong employment, possible turn in bond
yields, and bottoming in Asia suggest we could see a turn in interest rates
and inflation - this week's Barron's includes an interesting column on the
subject by Gene Epstein. Such a turn could trigger a significant correction
in US equities _if_ the speculative expansion of PE's comes to a halt - an
assumption which might itself be speculative in the face of incredible
liquidity flows.
I have prepared a separate post regarding the NYSE specialists short
selling.
Earl
-----Original Message-----
From: U.Stuart Auslander, NYC <u.stuart-auslander@xxxxxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Sunday, February 07, 1999 1:31 AM
Subject: Re: Market Trend, continuation of bear begun in April 98
>Sol
>
>My prediction for continuation of the "bear market" does not rule out the
DOW
>from hitting 12,000. I am arguing only for longer term investors that the
>technical signals are flashing very serious warning signs of a significant
top &
>that April constitutes the top for the broad market. The advance decline
line is
>now divergent for 10 months since the top in April 1998. (Since 1955 there
have
>been 15 tops or top signals signals. Two were false,1964 & 1988. 1968,
1983, and
>1993 there were no divergent signals.) (See http://www.decisionpoint.com
for
>charts from 1926.) Divergences longer than the current 10 months occurred
in
>1973 for 19 months and in 1987 16 months. I would describe the current
>divergence as catastrophic.
>
>My doubts to the accuracy of my prediction do not relate to the broad
market but
>to the DOW which represents the most heavily capitalized issues. These are
>virtually always the last to start declining in the "bear." Better timing
methods
>come with Fed tightening, rising interest rates and escalating inflation.
We may
>see none of this in this bear market. I suspect we will get the bear with
Fed
>stimulation, declining interest rates and declining rates of inflation.
Earl
>Adamy from the Realtraders List has cited extreems of specialist short
selling.
>(Does anyone have a free source for charts on this?) This confirms the
extreems
>of call buying and observation of extreems of speculation in internet
stocks. The
>kind of speculation we see now I associate with the 1969 rally after the
1968 top
>and the 1962 speculation. In each case serious declines followed. 1962
was not
>associated with conventional Fed tightening though interest rates did rise.
>
>BerniceSol@xxxxxxx wrote:
>
>> Dear Stuart,
>>
>> Perhaps the very fact that the Dow and the A/D are divergent proves that
there
>> is not one "market" but at least two, and that the conventional measures
don't
>> apply.
>>
>> Sol
>
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