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Index Wrap

Is The Bull Market Back\?

HAVING TROUBLE PRINTING?
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       11-20-2001           High     Low    Volume Advance/Decline
DJIA     9901.38 - 75.08  9976.73  9893.49  1.3 bln   1451/1678
NASDAQ   1880.51 - 53.91  1930.21  1877.79  1.9 bln   1363/2246
S&P 100   590.03 -  5.04   595.65   589.61   Totals   2814/3924
S&P 500  1142.66 -  8.40  1152.45  1142.17
RUS 2000  453.90 -  3.81   458.82   453.76
DJ TRANS 2489.44 - 43.08  2530.67  2484.33
VIX        25.93 +  1.13    26.55    24.97
VXN        51.41 +  1.14    51.69    50.05
TRIN        1.51
Put/Call Ratio       .60

Contact Support

I don't know, but let's ask CNBC, a cable channel that has ceased to remain relevant in the financial news business according to a New York Times article over the weekend. I guess they think the bull is back based on their headlines of same in the Business Center Round Table discussions over the last four days. But today despite their best efforts to remain relevant, the market fell without their blessing.

Don't get me wrong. Even as I poke fun at the talking head and analyst de jour aspects of the show, it is a tough business that I would not want to be in. Much as we all think they should stick to the investigative business reporting, their primary goal in life is to profit by selling advertising time, which more than covers the cost of producing content that gets us to watch the ads between takes. Back in 1999, business was a hot topic and the focus of cocktail conversation all over the world. CNBC was fashionable. Now, it's about the war on terrorism. Our interests have switched from the Internet canyons of Amazon.com to the rock caves of Afghanistan.

In short, it is the general public that has changed its mind on what is now relevant. The upshot is that relevance has fallen from CNBC now that CNN controls the "top of mind" headline. Some might be thinking CNBC deserves their fate by providing shameless cheerleading forums for analysts and fund mangers that duped hapless investors into the bubble over many years. The thinking goes that "those dummies should get the credit/blame for the market's demise." Much as I disagree with a lot of bone-headed thinking that passes for market analysis, I would argue that roosters are not that smart either, but we don't give them credit/blame for the sunrise.

Back to the new bull market that CNBC was so worked up about yesterday, as were many investors when the major indexes reached relative new highs. In my sometimes not so humble opinion, we have merely experienced a bullish correction contained within a larger bear market. There may be more bullishness left. It is still a target-rich environment for the trader, but not a good place to be for the buy and hold investor. Of course, I could be completely out to lunch with the notion of having missed the most profitable stage of a new bull rally too. It would not be the first time. However, the markets certainly did not appear bullish today as the Dow shed 75 points to close at 9901. The NASDAQ-100 gave up 67 to close at 1549.

One convincing argument in favor the bears was the uncharacteristically high volume on both exchanges - 1.33 bln on the NYSE and 1.99 bln on the NASDAQ - not only slightly high compared to recent days, but especially high considering we should have seen volume declining as markets progressed in time for a supposedly slow day tomorrow. Bears might also be able to make a chart argument that had indexes falling below support established over the last two trading days. But more on that in a minute.

Another bearish argument might be made by the most recent market leaders - semiconductors (SOX), software (GSO), and biotech (BTK) - leading us down today. All three of these were displaying (much deserved) relative weakness that may be foretelling of things to come in the broader market.

For now, I am not prepared to say the bears are coming back to town, but days like this are a first step if it is to happen. Still, my leaning is that today's action constituted profit taking in front of what will be a long holiday from trading for many. That may help explain some of the trading volume

However, despite the fall below recent support levels, the damage was not that bad. Had bears really wanted to make their presence known, today's red candles would be much longer. The markets are after all still trading above last Friday's close. Take a look over my shoulder.

Dow industrial chart (INDU):

The Dow shown above has a familiar theme - overbought stochastic with resistance taking over on the weekly/daily chart - still no rollover yet. Too early to call the bulls' demise. In fact, the 60 minute chart with a declining stochastic, yet steady price, suggests that for traders, the next entry could be for calls if the 60/30 charts reach oversold then reverse upward.

NASDAQ-100 chart (NDX):

A little different story here. Unlike the Dow, the technology- packed NASDAQ is showing some weakness. That makes sense given the bearish behavior of many semi, software, and biotech components. As the weekly/daily candles pull back from resistance, oscillators are signaling nearly clear intention to make a nosedive. Another large volume, down day would perhaps signal a position trade put entry. Call trades here are very iffy. Even though the 60/30 stochastics have entered oversold, unless NDX clears 1560 on the turn of the oscillators, I am much less confident of bullish action here. The 30-min candle breakdown from support is quite bearish despite its oversold condition.

S&P 500 chart (SPX):

Finally, we have the SPX, a blend of the two - definitely overbought, but support is holding so far without the weekly/daily oscillators moving south (yet). Meanwhile the 60-min chart like the Dow is holding up as the oscillator cycles down. If 1140 support can hold while the 60/30 oscillators cycle back up, the turn might make for a decent call scalp.

So what of tomorrow? Great interest in turkey may abound and remove some of the volume from the markets. We still have a falling VIX, and if it is also true that we are one specific terrorist turban away from a psychological win in Afghanistan, then the markets still have room to rally. Besides, Thanksgiving week has a slight bullish bias if history is any example. Bearish as I am in the fundamental picture, bears are going to have to prove their case in the trading pits. That will be much easier for tech stocks as they seem to have a head start. Only then would I be inclined to put any more than a small amount of risk capital into a bearish trade. It is too early to judge today the start of a bearish reversal.

For now and until proven otherwise, today's action in front of a major holiday looks to be more like a call TRADING (not investing) opportunity to be milked before the close tomorrow, NAZ excepted. I would avoid keeping open positions into Friday or next Monday. But for the gamblers among us (those that will roll the dice defying principles of good money management anyway), capital risk should remain limited.

I'll be back in the Wrappin' chair next week. Until then, everyone make a great Thanksgiving for yourselves. Take a moment to develop an attitude of gratitude and remember all that we have to be thankful for as Americans. Happy Thanksgiving!

See you at the bell.

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