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<A class=you id=youfirst
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you like you are the only investor in the world.
Ralph
Bloch’s Weekly Commentary
Ralph Bloch’s Weekly Commentary is released each
Thursday. Last updated Thursday, September 27, 2001.
LENGTHY BOTTOMING PROCESS
Last week's conclusion:
There is little doubt in my mind that we have seen a massive amount of
capitulation this week. At its worst Wednesday, the DJI had fallen over 1100
points this week!! Wednesday saw a violent rally after another ê shock wave,
and we like dramatic activity accompanied by high volume. Wednesday was the
second day this week where NYSE volume was above 2 billion, with Monday
posting an all-time high. What is also seen in a market about ready to post at
least a good rally is high levels of bearish sentiment. 1) The VIX index has
had highs of 47.7 on Monday - 46.67 on Tuesday and 47.62 Wednesday. Three very
high readings, which have, in the past, been a precursor to at least good
rallies, if not a low. 2) The oversold level reached a monster minus 12.1 - I
can't remember the last time it was that deeply oversold. 10/19/87 is probably
that time. 3) The I.I. figures showed the bearish camp above the bulls (35.7%
bulls and 37.6% bears) for the first time since the September-October period
of 1998. That was the bottom of that bear market. Having outlined all of the
above, I must say that there is such uncertainty - what President Bush does to
those evil 'things', more huge airline layoffs, etc. Futures, as of 6:00 a.m.,
point to a lower opening, which gives the market another chance to go out
really plus. Frankly, I'd wait for a good close. If the market can do it
right, there'll be plenty of time to play.
The I.I. figures improved, and I tell you that there is usually a one-two
week lag in reporting this data. So, next week will be the first time that it
will show response to the 14-1/4% drop. I'd love to see bulls below 30% and
bears over 50% or real close to that level.
This Week
Last Week
Bulls
33.7%
35.7%
Bears
42.1%
37.6%
Correction
24.2%
26.7%
Monday: 9/24
Well, well, the elongated capitulation phase finally led to a strong rally.
The DJI was up 280 at the opening and then, as we wanted, added to the gains by
getting over 400 points before closing up 368 points. NASDAQ traded in similar
fashion with a plus 76 finish. The Advance-Decline index was strong all day with
final readings showing 1605 net advances. In other words, the internals were
strong. No doubt in my mind that short-covering was a significant part of
Monday's equation. Also, the week's oversold level diminished from minus 17.0 to
15.9, and we believe that the 17.0 reading will prove to be the peak for this
cycle. An example, I think, of short-covering at work was TXN. It was 20.10 at
its low on Friday, and it was nearly 26 Monday - better than a 25% gain!! Other
big winners were BA, GE, IBM, UTX, MMM. First, let me suggest that before we can
be more comfortable that a final bottom is in place, we have to do it all over
again. By that I mean we need to see a low (Friday?) - rally - retest. The
retest has to produce some positive non-confirmations the way we saw in
March-April. The missing ingredient back then, with benefit of 20/20 hindsight,
was the lack of a period of base-building. For example, in 1987, the low was on
10/19/87, which was followed by a sharp rally - a period of lateral trading and
then a successful retest in December. There was a two-month base. In 1990-1991
(Gulf war), the DJI bottomed in October and formed an inverse "H&S" pattern
and broke out the day the war started in 1/91 - nearly a three-month base. This
is what we didn't have earlier this year, and it's what I missed! A lower
opening is a better way this morning - that ought to lead to further rally
tries.
Tuesday: 9/25
It's hard to believe, but we just saw two plus days in-a-row. What was of
interest was that there were several swings that went from up 91 at 10:15 a.m.
to down 80 at 2:00 p.m. There were a couple of smaller swings that led to a
close of up 56 for the DJI and up 2 for NASDAQ. Breadth held nicely in positive
territory all day, even when it went minus, and ended with 609 net advances. A
couple of losers were MRK and GM. The Puts-Calls ratio was benign with readings
of 120% at noon and 117% at the bell - I wouldn't expect anything different
after Monday's big upper!! The oversold level fell a bit to 14.9 vs 15.9, and
the minus 17.0 does appear to have been the peak. Good winners were BA, PG, SBC,
UTX, WMT. There isn't any evidence that the final low is in place - it may well
be, but I can't bet the ranch just yet!! At a minimum, we need to see the market
continue to rally - 9000 or so would be a big help. Then we need the
near-inevitable retest that produces some positive non-confirmations - more on
this as it unfolds. If that plays out, then it would be necessary to see a
period of base-building similar to October-December 1987 and October-January
1990-1991. If so, then odds would strongly suggest that the final lows would be
in place. All of this will obviously take time.
Wednesday: 9/26
Plus openings of 58 and 15 by the DJI and NASDAQ, respectively, led to
selling that carried the DJI to down over 120, with a close of down 92. NASDAQ
followed with a down finish of 37 points. "Reasons" were, for a change, very
visible. Numbers were lowered for IBM and a downgrade for MU sent these stocks
reeling with loses of 3-1/3 and 4, respectively. This cast a real pall over the
entire market after two plus days. The internals were good with the
Advance-Decline index showing good signs of relative strength as it posted only
144 net declines - much better than the DJI. This is what we want to see on down
sessions when we're struggling for a bottom. This will, I'm afraid, continue for
a while. For the first time in a while, the Puts-Calls ratio jumped early, but
faded. It was 224% at 11:00 a.m., 243% at noon and 141% at the bell.
Conclusion:
Remember that tomorrow is the last day of the quarter, today is a Jewish
holiday, and volume will be less than usual. GS lowered its rating on INTC, etc.
etc. A lower opening is preferable, as it then might attract some buyers. A big
help would be for the cracked semis to start to stabilize - a long process
before they head higher in a meaningful manner. Volatility will continue as the
USA continues to deal with recent events.
Ralph BlochSenior Vice President
The opinions offered by Mr. Bloch should be considered a part of your overall
decision-making process. For more information about this report – to discuss how
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may have or may in the future, execute transactions in the securities mentioned
in this report, which transactions may not be consistent with this report's
conclusions.
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