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Bulls, Bears and Poultry

February 16, 2001

No Saint Valentine's Day masscare . . . was our call, inline with the forecast for an attempted down-up-dip-up intraday pattern for Wednesday, which worked flawlessly, though we couldn't know the forecast would turn-out so well ahead of time, just knew it needed to, given the proximity to a further breakdown and potential new leg-down.

Are we out of the woods yet? Of course not; though an 'unrequited love' theme from Tuesday was borne-out, though of course our longer-range interpretation of what Mr. Greenspan really meant (if a part of a grander strategy) surely remains to be seen. In the meantime, the market is giving him the opportunity to be performing a Potomac 2-step, as we outlined Tuesday evening. Because of our own interpretation of who was doing the suggested selling after the expected twin-rally tried on his Testimony to the Senate Banking Committee, or why they were doing it; today was a vote for the view.

Meanwhile, overall ideas of a January rally which wouldn't be easily discernible from a bear market rally, followed by a February decline (mostly in the first half from called late January/early February short-term tops), gave us the opportunity to capture the first (and failing but quite profitable) rebound into yesterday, a very nice short-sale in the morning again, and then the guideline long, which we retain for the moment (live).

Technically . . . this reversal and long-side entry at 1311 in the March S&P today, is occurring from fairly crucial areas of potential secondary test in the Senior Averages, such as the S&P 500 and the Nasdaq 100 (NDX), but not exactly the same action in the Dow Industrials, which while relatively overbought (and easing some of that just now by the way), is in an interesting position to challenge a breakout if 'the boys' can mount one of those impressive lofts out-and-over the resistance just around 11,000. (Balance of technical section, which references key points and levels, is reserved.)

Of course, as this is a nominal Expiration week, and last week was unable to sustain a rebound, some sort of frantic short-covering is (and may conceivably continue) as a factor here, which ideally would levitate the market again, ideally in another generally up-down-up day. Because of the proximity of resistance (very close for NASDAQ) for the moment, there is an opportunity to run-in the shorts, and increase optimism that's so lacking in this market, concurrently. That would potentially go far to improving tone in this market, and coming after the post-Greenspeak sell-off, would cause a greater proportion of the analysts to question whether they had gotten newly excited about a downside move, about the time such a move was ending, certainly not commencing. As far as how this pattern evolves, we'll try to touch on more of that tomorrow night.

Bulls, Bears and Poultry

If the market continues shrugging-off the sellers and surmounts resistance, then you have what's potentially a secondary test of late December lows; so that's the grander import of all this, that potentially goes far beyond simply oscillating rallies & declines, as fun as they have been to capture for S&P players (or similar), but as frustrating for investors as all get-out. That means we risk loosing confidence considerably if this is not able to be built-upon, and probably have an entire leg down in the S&P thereafter as you know. If we can build upon this (our preference), then interestingly enough, it will not only send a sign that the new bears are wrong, but impact general consumer confidence potentially, as the public (so recently bombarded by many news stories or pieces of mostly-negative information on the economy) would sense an eventual turn.

May sound strange to suggest that the market could influence consumer perceptions, but that's 'chicken or egg' arguments. It really doesn't matter which occurs; just stop the psychological retrenchment, or the Nation will have more difficulty on all fronts. In that regard, it's technically noteworthy how technology stocks (at least momentarily in this scenario) are 'ignoring bad news', again a pattern associated with bottoming-type action. The Street's bulls have been scratching, but are mostly moribund, bears of all stripes are aware how crucial this area is for their shot at reigning-in the hopeful that think all this growling is failing to recognize the discounting mechanism of markets (at the same time as it recognizes monetary stimulus is coming with certain stocks not at price relationships often associated with bottoms, which is troubling in some areas for sure), while an awfully lot of managers are refraining from taking bull or bear stances.

Those are the 'chickens'. Hence a poultry moniker for the situation at the moment. At the same time we have tended to suggest treading lightly for a couple days, today we did approach the S&P more aggressively, both with respect to expecting an effort to continue the selling in the morning, and with respect to the upside turnaround later. In fact it was really interesting, because on the 10 a.m. 900.933.GENE hotline comment we determined that an ideal approach would be to tighten-up the wider mental stop guidelines (your own efforts may have done all or none of it, as we try to give a focus on pattern expectation as we see it, not trade for anyone but ourselves) around the 10:25-10:40 area, ET. Well what do you know, the downside accelerated after 10 and then bottomed right at 10:40; that's how we managed to catch the reversal so close.

Daily action . . . has not suggested getting incredibly excited by all this, as the better percentage gains were expected to be from late December and/or after January's bit of a 'hiccup', and then (ideally) after the February decline into March; notwithstanding all this inappropriate speculation about the Fed somehow dropping the ball on cutting rates; which in our view they have not; just trying to jockey for position to have better chances of providing maximum impact when they do adopt the next easing move.

In any event, Wednesday was a session in which the techs never really declined with the Dow Industrials; thus we suspected (on our early intraday comments) that we'd hear the pundits claiming that techs are suddenly 'less interest rate sensitive' than a slew of mainstream companies; and indeed some are saying that. A handful of fairly predictable technicians indeed not only says that, but believes the bear isn't over for big companies. Well it may not be, but it's working on three years from the top in theAdvance/Decline Line; so contrary to popular delusions, deterioration isn't new now; didn't start with the 'dot.bomb' implosion (though psychology was broken as of then); and should end overall (including a test and/or basing) when the idea of investments hurts in the pits of not only individuals, but institutional managers. There's some room for debate as to whether the 'pain' was great enough last year for them; we think that it was, though absolutely will listen to whispers from the market as they ebb and flow.

That means that (for about a week) we've felt that what 'the boys' would do is break it just enough to give the impression the prior low had failed (especially last weeks low) and then turn-it up again, in a crucial reversal that would need follow-through. That's the move we're in now, and we're definitely giving the market the option of handling it in a favorable manner, especially since our thinking has been that the technical break and 'blah' feeling permeating the Street in the wake of Greenspeak yesterday, was as you know, a typical presentation of an excuse to get negative, which meant everyone who wanted to sell or argue the downside (including reactive technicians) with a mere pedestrian response, had that opportunity. That often concludes rapid selling waves; a reason we were looking for Wednesday's pattern washout and reversal in the S&P; an evidence of which is not provided (yet) by the Dow, and for that we're really glad.

Interestingly enough, these accomplishments (surrounding these areas of technical confusion for many analysts) included catching an intraday short-sale guideline early-on (around 1319); then covering and reversing long atMarch S&P 1311 per the 10 a.m. hotline's guidelines (900.933.GENE) during the course of the morning. A further call included the urgency of surmounting noon-hour rebound highs, which was done.

As that level came out, shorts scrambled, and that was the heart of the afternoon rise of course. Now Thursday needs to challenge, and hopefully surmount, today's highs, in such a way reversing a pattern that otherwise would expose subsequent risks next week. One might think we're too enthusiastic about Wednesday action. given that the DJ dropped over 100. But, the NASDAQ never got hit, the sellers appear exhausted, and that can be the stuff of which key reversals are made of; with the DJIA kicking-in later-on. We'll see. It goes without saying that the DJIA is coming off overbought, and the NASDAQ oversold' thus this remains a somewhat bifurcated market environment.

While there remains no clear general 'visibility' on earnings, we continue to suspect a turnaround (balance of discussions, on the Fed as well, is reserved for subscribers).

Clever, if that's really his intension. And we're clearly speculating, but we think that's just the ticket for this spot where you really don't want to minimize the impact of cuts on the market's psyche, by virtue of having investors smugly complacent about their coming. Hence, what would otherwise be considered 'good news' prospects (stronger economy) with respect to hinting at a continued aggressive movement to lower rates from here, being blunted, but wasn't blunted with any real news (due to the retail data reflecting closeouts etc.), and therefore essentially cancels out the reason attributed for yesterday's selling. As a result we thought it was a predictable trading move, and would be reversed Wed. The hotline's (900.933.GENE) holding long overnight now.

In summary . . rotational lows clearly developed, and are continuing. Varying stock-by-stock and within groups, this remains a news-sensitive environment in every way, as today certainly showed. Maybe too optimistic, but we expected bears to resist the second rally on Tuesday, and determined to buy the early washout on Wednesday. The idea was not going to join what's in what's in many ways a sort of 'thumbs down' on the Fed Chairman's testimony, as we would like to believe that they know better than to believe all our problems are ebbing, thus saw the affair as a trading swing.

The McClellan Oscillator data is around -37 for the NYSE as the NASDAQ reading is around -20 now (a nominal plus 1 change). Things happened pretty fast today, but there's no overall change in our call; which happened to include looking for a short-term pop and then a daily flop on Tuesday; a kind of drop that ideally would affirm pessimism, as it did, setting up a Wednesday turnaround. No Valentine's massacre was the call, though note bulls have got to run with the ball. If not, past levels seen as key to this move, we'll be compelled to reverse direction once more; reluctantly.

We're long S&P's for now, after two weeks of treading somewhat less lightly, and we definitely are glad we took the stance yesterday of not getting excited about frantic downside extensions without more short-term upside tries intervening this week; well underway. With a short-sale gain of around 800-900, and then a solid paper gain in the guidelines of more than that, the day was quite satisfactory, capturing about all that was available in the turn. As of 8:45 p.m., S&P Globex premium's is 608; with futures up 2 points from regular Chicago activity, which finished at 1319.80 (now at 1322). Holding long from 1311 for now, with an eye to additional Thursday upside.

Gold is still being mined and refined at the rate of almost 2,600 tonnes per year.
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