The Daily Chartist: Only Time Will End This Tech Bear Market

Dec. 7, 2000

For quite some time I've been discussing the lack of capitulation in the market, saying that this is one of the reasons we can't seem to bottom. Wednesday I discussed some anecdotal reasons that we may be close to a bottom. I ought to clarify how I can say we're close to a bottom without having had the capitulation I've been ranting about.

First, we're now three months into this current leg down; if we go back to the March highs, we're nine months into it. The longer this goes on, the less we can expect capitulation. Capitulation is something that comes during shorter-term declines. This is not a short-term decline; this is a bear market -- at least, in technology it is.

During a bear market, we should see a series of short-term capitulations. We had one on Oct. 18, and we had another late last week, on Nov. 30, when we saw the number of stocks making new lows on the Nasdaq Composite Index reach a staggering 737. But at this point, the key to ending this bear market is time. It will take time to build bases, and time for the market to sort out which companies are going to emerge from this bear.

It's through this series of declines and bounces that we'll find stocks making higher lows and higher highs -- and those are what build bases. At this point, the best we can say is that some tech stocks have held at higher lows. When short-term sentiment gets too negative, and when some stocks begin to show higher lows, along with the market being oversold, that's when I sense we're close to a bottom. But it's one bottom in a series. Remember, this is a process, not a one-day event. The majority of technology stocks will eventually go to single digits and just languish there, but there will be those that eventually emerge as winners in the next bull market. Those are the ones that will make a series -- not just one or two -- of higher lows.

Just in case you don't believe tech stocks need to build bases, I draw your attention to Sun Micro (SUNW:Nasdaq - news - boards) in the early 1990s, when for 2 1/2 to 3 years that the stock went sideways with a downward tilt before launching a sustainable rise. But we had several short-term bottoms along the way. The bases will eventually be built, but in my opinion, without the bases, bottoms are short-term in nature and rallies will be halted by resistance.

Overbought/Oversold Oscillators

For an explanation of these indicators, check out The Chartist's primer .

---

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets on Tuesdays and Fridays, and updates her charts daily on TheStreet.com. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback and invites you to send it to Helene Meisler .