Summary
I think something worse -- perhaps significantly worse -- than a mere
"healthy correction" is lurking out in the future ... The question of great and
growing import now is could the "future" be closer at hand than almost all
strategists, analysts, etc. believe it could be?
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Over the last several weeks, I've been discussing the possible topping
pattern being traced out in the stock market. The following table provides an
update, using the seven measures in my tracking group as a proxy.
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SELECTED STOCK-MARKET MEASURES
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Recent Highs 03/02
03/02 ------------ 02/11 01/26 From
Close Close Date Close Close 01/26
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NYSE Comp. 6717 6770 02/17 6751 6672 +0.7%
Value Line 382 384 03/01 384 384 -0.5%
S&P 500 1149 1158 02/11 1158 1155 -0.5%
Wil. 5000 11225 11293 02/11 11293 11282 -0.5%
DJIA 10591 10738 02/11 10738 10703 -1.0%
Russ. 2000 591 597 02/11 597 602 -1.8%
NASDAQ 100 1473 1554 01/26 1514 1554 -5.2%
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Average -1.3%
Median -0.5%
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Prior work identified the closes on 2/11 and 1/26 as possible/probable
key levels. Both represented respective highs for most of the measures at the
time. As the situation is unfolding, I think it is of more than casual
interest that as of yesterday's close, all but the NYSE Composite stood below
respective 1/26 closes.
Note in the "Recent Highs" column in the above table that despite the
sharp rally during much of this Monday's trading session, the 2/11 levels held.
Moreover, the three exceptions, the NYSE Composite, the Value Line (geometric)
and the NASDAQ 100, represent interesting stories:
(1) The NYSE Composite limped to a slightly higher high (+0.3%) on 2/17.
(2) The Value Line Index made a very minor high on Monday, but one only a
very small fraction higher than the ones established on 2/11 and 1/26. (3) The
NASDAQ 100, the bellwether measure having lost the most momentum recently, has
not come close to eclipsing the high it set on 1/26.
Even if the rally commencing off the March 2003 lows continues, it is
likely to contain a pullback at some point to around respective 200-day moving
averages. At present, this would look like the following, using the DJIA, the
NASDAQ Composite and the S&P 500 as benchmarks.
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200-DAY MOVING-AVERAGE VIOLATIONS --
VALUES PROJECTED FROM CLOSE ON 03/02/04
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% Decline From
MA Violation/ 03/02 Close At
Resulting Price Violation Of:
03/02 --------------- -----------------
Measure Close 0% 3% 6% 0% 3% 6%
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DJIA 10591 9728 9436 9144 8.1 10.9 13.7
NAZ Comp. 2040 1869 1813 1757 8.4 11.1 13.9
S&P 500 1149 1046 1015 983 9.0 11.7 14.4
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I think something worse -- perhaps significantly worse -- than a mere
"healthy correction" is lurking out in the future. The "how-can-this-be?"
explanation of why awaits another time. The question of great and growing import now
is could the "future" be closer at hand than almost all strategists, analysts,
etc. believe it could be?
As is always the case, the stock market will determine the answer.
However, the market's current technical patterns are giving some reason for at
least a modicum of concern; it would be damn foolish to ignore them!
In this regard, investors would perhaps do well to reflect back on the
distribution pattern the market put in during the first few months of 2002. At
the time, the CNBC and related crowd trivialized the hell out of it. The
outcome, however, turned out to be anything but trivial!
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