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Index Wrap

Bubblemania Relived!

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      12-05-2001          High     Low     Volume Advance/Decline
DJIA    10114.29 +220.45 10142.32  9891.35 1.75 bln   2063/1098
NASDAQ   2046.84 + 83.74  2056.81  1980.30 2.72 bln   2420/1272
S&P 100   597.70 + 12.07   599.38   585.63   Totals   4483/2370
S&P 500  1170.35 + 25.55  1173.62  1143.77             
RUS 2000  479.42 + 11.58   480.43   467.84
DJ TRANS 2612.49 + 77.64  2618.47  2531.40
VIX        24.79 -  0.54    24.79    23.62 
VXN        47.44 -  0.60    48.90    46.57
TRIN        0.34 
Put/Call    0.44

Bubblemania Relived!
Austin Passamonte

Autozone: +$12.55 today on earnings report. Current PE = 42

TXN current PE ratio based on Dec 2003 estimated earnings: 53

EMC current PE ratio based on Dec 2003 estimated earnings: 128


Many pundits scream that this market's way over-extended, and they might be right. Others claim the birth of a new baby bull arrived on 9/21 and the shiny calf is growing fat & sassy.

DRAM prices are up, NAPM is up, Chambers and Ellison are up... etc. All recent evidence points to an economic turnaround underway and a large-range day on heavy volume this sessions proves that many shorts screamed in agony as sideline bulls couldn't stand being left outside the fence any longer. Buy now or forever miss out on the bottom!!!

I doubt it, but who cares? Traders and investors never having lived thru a bear market before year 2000 are excused for getting crushed in the subsequent collapse from there. If this recent ramp ends the same way months from now, there will be zero excuse for losing money on long plays then. Simple as that. Everyone is on their own to make educated decisions this time with both bull and bear market experiences fresh in their minds.

Personally, I think we'll see a good share of both. As noted many times over the past from my dusty corner in here, this is not a market to short. The trend is up, seasonal patterns are strong and momentum buying is alive & well. Now we have mutual fund managers forced to chase a runaway market in order to preserve their lofty salaries next year.

Should we join the chase starting tomorrow? Let's see:

(Daily Charts: NDX and Dow)

The NDX (left) staged a nice push off the lower support line of its channel on Tuesday and closed just below that vaunted 200 DMA everyone is now talking about. The gap-open today began above it and never looked back, even as the Comp and its denizen of penny stocks followed suit a few hours later. Stochastic values have just begun a bullish reversal as well.

Dow chart (right) shows closing price action stalled right below the 200 DMA and mid-line of its channel, with bullish stochastic values as well. We figured resistance would be met there and it was. Will that fall on a break & close above tomorrow? Tough to say, but we'll look at some intraday charts in a bit.

Meanwhile it remains to be said that the NASDAQ is relatively stronger than the Dow as investors continue to chase the wrinkled prom queens from yesteryear expected to look ravishing with a new facelift and liposuction soon.

(Daily Charts: OEX and SPX)

Channels for the S&Ps would look quite similar to the Dow, but we'll draw some clear chart patterns here for a different view. See those expanding wedges building for the past three-plus weeks? Those are indeed signs of bearish instability. A break AND CLOSE above the upper resistance line met by their 200 DMAs would be quite bullish indeed, and stochastic values suggest the effort will come very soon.

(30-Min Charts: OEX and SPX)

Leaving those wedges intact and switching time frames to 30-min instead, we dial down to see where price action is within the bigger picture. Tuesday's broken wedges point out the last call play entries Swing Trade was a bit early on when entering the day before. Where is price action tonight? You guessed it: kissin' distance from near-term resistance. I'd watch for firm rejection from those lofty levels and pullback to support areas marked as next really good call play entries, but a break and close above resistance lines would work as well.

(30-Min Charts: QQQ and SOX)

Likewise with the QQQ and SOX. Near-term extended (of course) and likely to wander back and fill those gaping gaps left at the open this morning. Rest assured they will fill real soon unless it was a breakaway gap, which I rather highly doubt. A retreat to those windows would be just the ticket for call play entries once more.

What If It Never Comes Back?
That's the question numerous retail traders are asking themselves tonight as they peruse charts splashed in green with prices soaring away without their money aboard. Think there might be some "buy on open" market orders staged tonight as fear of loss kicks in the chase instinct with gusto? Odds are we see another gap-up open as foreign markets follow today's U.S. lead and retail money yearns to join the crowd.

Heck, it worked real good in 1998 - 1999 and might work just as well this time. Bob Pisanti of CNBC fame is the one who spouted those two-year distant PE ratios for EMC and TXN listed at the front of this work. He refused to even tell us what forward PEs are for each symbol right now, but it goes without saying they are much higher. Can that kind of valuation last forever? Did year 2000 teach surviving traders anything? Time marches on at a steady pace and will eventually expose the truth.

With a VIX falling further each day and a reading now below 24, I wouldn't be too concerned about never seeing lower prices again.

Maybe stocks can grow to the sky but we thought they already tried that once. As we said earlier, this time there are no newbies in the game without personal knowledge of bubbles and bear markets. If a new, multi-year bull market had begun we'll all get rich over time. No rush to join what will last for years, is there?

If current action is merely the next setup for devastating declines in the future, there can be no excuse for anyone to have upside exposure naked without stops or hedges in place. As for me, I couldn't care less whether we see new all-time highs or lows from here. My methods allow equal prosperity either way and I'll readily take whatever the markets deliver. After all, that is precisely what we will get!

Favor the upside until at least into Jan 2002 and buy every pullback to support. We should have plenty of company trying the same thing.

Best Trading Wishes,

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