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This from Tuesday's TheStreet.com email...
JW
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The Chartist: Get Out the Hammock, It's Time for a Summer Slowdown
By Helene Meisler
Special to TheStreet.com
7/18/00 9:09 AM ET
July 18, 2000
After a few days off, I expected to come back and see something
different in the charts and statistics. After not checking the market
for three trading days, it doesn't look much different than it did when
I left it last Thursday morning. It needed a rest then; now it looks
like it needs a good night's sleep. Sure the S&P is now almost 20
points higher, but the indicator that contributed to its improvement
and recent rally, the breadth of the market, managed to gain a measly
47 issues during that same period. That's not what makes the foundation
for further rallying on the NYSE.
I view the market and its indicators as a set of old-fashioned balance
scales, those that have a dish on either side. If one of those dishes
is weighted down more than the other side, I tend to give more credence
to the side with more weight. Last week the dishes, which had been
skewed toward bullish since June 23, were becoming more even,
suggesting a period of rest or consolidation for the NYSE. Now I find
the weight shifting further toward that side, with fewer reasons to buy
stocks right now.
As explained above, the breadth of the market, which really has shown a
great deal of improvement in the past few weeks, has begun to
underperform the S&P once again. That is not a near-term plus. In
addition to that indicator, the market remains overbought. In fact, the
latest surge of almost 20 points on the S&P hasn't budged this
indicator, suggesting there is little oomph left on the upside. The
oscillator has yet to surpass its high of early June, despite this
upward move in the S&P.
You've probably also noticed that the number of stocks making new highs
on the NYSE has fallen by more than 20% in the past five trading
sessions. This tells us the recent winners are already having a rest.
Let's add to this the fact that cumulative volume on the NYSE has still
not made a new high vs. its previous highs. That tells us there is
still a lot of volume on the downside relative to the upside, and that
needs to change for this market to rise with ease.
Then there's sentiment. It's by no means wildly bullish, but it's also
no longer in a place that supports a rally. Four weeks ago I began
talking about the specialist short ratio as having come down far
enough, to a reading of 42%. It stayed in this range (42%-43%) for
three weeks, suggesting there was still room to rally. However, the
reading from this past weekend has shot up to 48%. Now, 48% is not
bearish (a reading over 50% is like throwing up a red flag) but at 48%
we are no longer looking at sentiment being too bearish (and thus
bullish for the market), so that weight must be removed from the
bullish side of the scale.
Another sentiment measure, the put/call ratio, has also moved away from
the bullish side of the scale. A few weeks ago, this ratio was
providing readings in the 50s and 60s, telling us there weren't many
believers in the rally. Now the readings are in the 30s and 40s,
telling us there are too many believers.
By now everyone is convinced that the economy is slowing down, and
statistical evidence points in that direction. , but I am forced to
wonder if the economy is slowing down, why then is the yield on both
the 10-year and 30-year bonds rising? Perhaps it's because we have now
seen numerous articles written about how the Fed is done, and if
they're not, then August will be the last time, so we no longer need to
worry about rates. But if that's true, then why is the yield on the
ten-year note back to the same level it was at on June 2nd, the day we
got the employment data for May, and looking like it can get back to
6.25%? Maybe Mr. Greenspan is not going to be very market friendly when
he addresses Congress later this week.
The market is now acting tired and the statistics are telling us it's
going to be hard for the majority of stocks to make much progress
without some consolidation first. As always, I vote for a consolidation
or correction to give the market a chance to catch its breath and shake
out the weak holders. If it keeps going without a rest, the market
becomes overextended and narrow, and you don't need me to remind you
what happens to markets that become overextended and narrow. Let's hope
we get that much needed rest soon.
Helene Meisler, based in Singapore, writes a technical analysis column
on the U.S. equity markets on Tuesdays and Fridays, and updates her
charts daily on TheStreet.com. Meisler trained at several Wall Street
firms, including Goldman Sachs and Cowen, and has worked with the
equity trading department at Cargill. At time of publication, she held
no positions in any securities mentioned in this column, although
holdings can change at any time. Under no circumstances does the
information in this column represent a recommendation to buy or sell
stocks. She appreciates your feedback at KPMHSM@xxxxxxxx
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