Summary
Two weeks a trend does not necessarily make or confirm, but the last
couple weeks certainly do look "different."
_____
Last week was the first time in which the S&P 500 fell in two consecutive
weeks since November (weeks ended 11/14 and 11/21). Moreover, the recent
decline was respectable in magnitude, a total of 4.1% over the two weeks. (For
the year to date, the S&P 500 finished last week in negative territory -- down
0.2%.)
During last week, the seven-measure stock tracking group was down an
average 1.3% (median = minus 1.0%). All components fell, with losses running in a
range of 0.5% for the DJIA, to 2.2% for the NASDAQ 100.
Also of interest is what has happened over a short period to the CBOE
Volatility Index (VIX). On 3/5, it hit a 52-week low of 13.80. At last week's
high, set on 3/15, the VIX traded at 21.39, a rise of 7.59 points or a very
sizable 55% from the 3/5 low. (The VIX finished last Friday at 19.15.)
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THE BEHAVIOR OF CBOE SENTIMENT-RELATED MEASURES
AND THE S&P 500 FROM 01/02/04 THROUGH 03/19/04
----------------------------------------------------
S&P 500
Date CBOE Options -------------------
or Put/Call Ratios Versus Cum.
Week CBOE -------------------- Prior 10/9/02
Ended VIX* All Equ. Ind. Tot** Close Week = 100
----------------------------------------------------
2004
03/19 19.15 1.03 0.89 1.60 0.83 1109.8 -1.0% 142.89
03/12 18.30 1.05 0.82 1.70 0.84 1120.6 -3.1% 144.28
03/05 14.48 0.79 0.61 1.50 0.83 1156.9 +1.0% 148.95
02/27 14.55 0.72 0.59 1.40 0.83 1144.9 +0.1% 147.41
02/20 16.04 0.86 0.66 2.02 0.83 1144.1 -0.1% 147.30
02/13 15.58 0.76 0.59 1.58 0.81 1145.8 +0.3% 147.52
----------------------------------------------------
02/11#15.39 0.68 0.56 1.19 0.82 1157.8 -- 149.07
----------------------------------------------------
02/06 16.00 0.63 0.46 1.72 0.82 1142.8 +1.0% 147.14
01/30 16.63 0.81 0.71 1.30 0.83 1131.1 -0.9% 145.63
01/23 14.84 0.77 0.60 2.17 0.82 1141.6 +0.2% 146.98
01/16 15.00 0.51 0.35 1.95 0.85 1139.8 +1.6% 146.75
01/09 16.75 0.65 0.45 1.75 0.84 1121.9 +1.2% 144.44
01/02 18.22 0.75 0.53 1.94 0.83 1108.5 +1.1% 142.72
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VIX Highs and Lows (Including Intraday)
---------------------------------------
Year High Date Low Date
---------------------------------------
2004 21.39 03/15 13.80 03/05
2003 41.16 03/12 14.83 12/15
2002 56.74 07/24 18.87 03/28
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#S&P high close, 10/9/02 forward.
----------------------------------------------------
Actually, from the perspective of my own technical work, the trouble
started more than a couple weeks ago. Following is an excerpt of material
contained in the 3/3 missive ("Stocks: The Topping Formations Continue"). While it
is a bit lengthy, it appears it is becoming increasingly important.
"Over the last several weeks, I've been discussing the possible topping
pattern being traced out in the stock market.
..."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 [on
3/1], 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.
"...I think something worse -- perhaps significantly worse -- than a mere
'healthy correction' is lurking ... 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!
"...Even if the rally commencing off the March 2003 lows continues
[longer run], 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."
NOTE: The following table updates these values through last Friday's
close.
-------------------------------------------------
200-DAY MOVING-AVERAGE VIOLATIONS --
VALUES PROJECTED FROM CLOSE ON 03/19/04
-------------------------------------------------
% Decline From
MA Violation/ 03/19 Close At
Resulting Price Violation Of:
03/19 --------------- -----------------
Measure Close 0% 3% 6% 0% 3% 6%
-------------------------------------------------
DJIA 10187 9820 9525 9231 3.6 6.5 9.4
NAZ Comp. 1940 1894 1837 1780 2.4 5.3 8.2
S&P 500 1110 1056 1024 993 4.9 7.7 10.5
-------------------------------------------------
A near-term test of respective 200-day averages would require the
material breach of key psychological levels -- 10,000, 1,900 and 1,100 for the Dow,
NAZ Composite and S&P, respectively. As I write this the S&P 500 is trading
below 1,100. The other two measures are above 10,000 and 1,900.
Today's weakness is undoubtedly exacerbated by some bad political
developments. Domestically, the Richard Clark interview last night on "60 Minutes" is
probably roiling the market a little. Internationally, developments
yesterday in Gaza are also likely making a negative contribution. In addition, there
may be some selling of individual stocks from exercised put options from last
week's expiration.
The bulls can be expected to attempt a stand somewhere around current
levels. Nevertheless, these folks have lost at least temporary control of the
game, and I fully expect the market to seek still-lower levels before any decent
reflex rally ensues.
The following table provides an additional illustration of something
"different" having emerged in the trading patterns of the last few to several
weeks.
------------------------------------------------
DJIA, S&P 500 AND NASDAQ 100 -- TW0-
WEEK COMPOUND ANNUAL RATES OF CHANGE
-- 19 WEEKS ENDED 03/19/04
------------------------------------------------
Week S&P NASDAQ
Ended DJIA 500 100
------------------------------------------------
2004
03/19 -64% -66% -74%
03/12 -58% -43% -50%
03/05 -6% +33% -15%
02/27 -10% -2% -22%
02/20 +7% +3% -25%
02/13 +41% +40% -14%
02/06 +7% +3% -43%
01/30 -24% -18% -64%
01/23 +30% +57% +20%
01/16 +60% +107% +372%
01/09 +40% +84% +283%
01/02 +39% +60% +96%
2003
12/26 +106% +68% +62%
12/19 +192% +93% +42%
12/12 +98% +48% -12%
12/05 +87% +92% +87%
11/28 +4% +21% +36%
11/21 -38% -36% -69%
11/14 -8% -1% -15%
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