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Wednesday, July 11, 2001: Brief Upmove
Expected . . . In last week's sell call, we
predicted that the NASDAQ would likely drop to
the mid- to high-1900s. This Wednesday, this
index reached just above (but did not break) the
bottom of its support level at 1930, down nearly
12% in five trading sessions from the high on
the day of our sell call. While we still have a
sell on this market, we expect to see prices
turn up briefly. The ratio of bullish to bearish
signals is now 6:1, and our proprietary strength
factor has reached 175 on the bullish side (a
value of 150 on the bullish or bearish side
signifies a buy or sell, respectively, if our
other criteria are met), however, we do not have
an actual buy on the market, as some of our
other criteria have not yet been met.
Additionally, many of the signals we now have
are a type for which stocks' reactions are
typically short-lived. As such, we are looking
to see prices rise until the NASDAQ has come
near--or just above--the 2100 level, after which
we expect the downtrend to resume. If the NASDAQ
is able to break out above resistance at 2180,
this would turn into a buy signal, but we see
that as unlikely.
On another note, we hope that some of you
were able to take advantage of last week's short
recommendations on LRCX and AMD and pick up
nearly 20% and 40%, respectively.
Monday, July 2, 2001: Another
Downmove Expected . . . Sell. Over the last
two weeks since our last buy signal, we have
seen the NASDAQ rise by nearly 10%, with the
NASDAQ 100, biotech, computers, internets, and
semiconductors rising approximately 12%, 3%,
11%, 14%, and 12%, respectively, from the low
the day after the buy call to yesterday's high.
We have also seen the ratio of bullish signals
to bearish signals on stocks we follow invert
from 10:1 bullish to 6:1 bearish as of last
Thursday, with our proprietary strength factor
reaching over 160 on the bearish side on all of
the last three trading days, maxing at 219 on
Friday (a value of 150 on the bullish or bearish
side signifies a buy or sell, respectively, if
our other criteria are met).
About three weeks ago, the NASDAQ, along with
the semiconductor and computer sectors,
completed head-and-shoulders topping patterns,
and our latest buy signal merely corresponded to
a bounce from a brief downmove back up to the
neckline, which occurs in many of these patterns
before the full sell-off. At the same time,
these major technology averages also broke
through their 50-day moving averages to the
downside, and these areas (which are at the
head-and-shoulders neckline) will serve as
resistance levels to the current rally. Despite
a fifth Fed easing, this market will still be
headed back down shortly, probably to around the
mid-to-high 1900s.
A few things do stand out, however, about
this downmove. We do not have as strong a ratio
of bearish to bullish signals as we would
usually get for major sell-offs, nor do we have
as many executable sell signals as is typical.
Additionally, we are not getting sells on the
stronger, less overvalued stocks, or the
"true" leadership issues, as we would
before a normal broad market decline. This could
mean that the downturn will not be as great in
extent as would usually be the case, or it could
mean (and we think this is more likely) that
this downmove will be followed by one more rally
before the broader sell-off. Nonetheless, we
would recommend getting out of technology issues
(though biotech should hold up better than the
rest) for the near term (probably the next few
weeks).
· August
2001
· June
2001
·May
2001
· April
2001
· March
2001
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