Bears Take On the Numbers

So what happens if all the bears are right and last Thursday's big move was a one-day wonder?

Well, there is actually a precedent from recent times where that was the case. It was in 2002. I was reminded of this last week when we had that big rally on Thursday and I chose not to discuss it.

However, I then remembered several columns I had written this spring that referred to 2002. Beginning on March 10, then on March 29 and once more on April 4, I wrote about 2002 because of all the comparisons we kept hearing about to 2002's consumer sentiment and how the DJIA had its best performing quarter in the first quarter of this year since 2002.

And in each case, I went on to show how comparisons to 2002 shouldn't give us a warm and fuzzy feeling.

Needless to say, when I came across that 2002 time period as part of my statistical reading over the weekend, I felt compelled to go back and have another look.

It is by no means a great comparison, but it is worth a look. That peak circled on the chart came on May 17. Of course it did not come from the highs (like our current May 10 peak did) as we had peaked in January (the Nasdaq) in 2002, but it was a peak.

Note that in 2002 we had a one-day wonder reversal in mid-June and another one in early July, but neither one took. In fact, we all remember the late July low -- but look at that low. We came right back down and retested it two weeks later. So it really wasn't the V bottom everyone remembers.

Of course I went back and looked at the oscillator from that time period and while we were oversold at each of those lows, we were not showing the extreme readings we are now. So it's not a great comparison, but for those of you who want to believe we are not close to a low, then that's what I can offer you.

I can offer bears the fact that the McClellan Summation Indices keep coming close to turning upward, but have not been able to do so yet.

I can also offer bears the fact that the new lows expanded last Tuesday and therefore we haven't gotten a positive divergence in the new lows readings.

But each time I look at the statistics and the various indicators I monitor, they all continue to say that we are in the area of a bottom that ought to lead to a rally. If we come down early in the week due to a post-expiration hangover, the oscillator will most likely not make a lower low and the number of stocks making new lows might even contract. So I continue to believe there is a bottom in here somewhere.

Overbought/Oversold Oscillators

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

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Helene Meisler writes a daily technical analysis column. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.