The Rally Window Has Bars

A couple of indicators cast doubts on a recent bottom.
By Helene Meisler ,

The first thing I must do is announce how wrong I was on what is now being termed the dot-corn bubble. Clearly Iowa corn does grow to the skies. Clearly there will never be enough fertilizer, there will never be enough seed and there will never be enough corn.

Very few have made new highs so far, and the one that did -

Potash

(POT)

-- actually closed right near the low of the day, so clearly buying interest waned as the day wore on. But that's the worst I can say about them.

But you can see that all it took was a market that couldn't go down on bad news coupled with a few hot momentum stocks to get folks bullish again. As I reported in Columnist Conversation midday on Friday,

the ISEE equity call/put ratio had zoomed up to over 200%

that morning, which showed that a certain amount of giddiness has re-entered the market.

Then the market did what it should have done: It came right back down. And as soon as it retreated, so did sentiment -- this indicator closed at a much milder reading of 167%.

Since I spent Friday's column announcing what was supportive of the market, allow me to show you some charts that are

not

so supportive of the market. I want to begin with one of the very basic indicators, the cumulative advance/decline line, or breadth. In the chart below, you will notice that Point A represents the high of the previous rally in late February and point B represents the current trade.

On the

S&P

, we are just about there now (brown line). Now move your eyes to the blue line, which is the cumulative a/d line, and note how much lower it is today than it was at the late February highs.

Now, I am always willing to give it a chance to improve itself (especially since the rally window is still open), but now I'd like you to look at the same indicator coming off the March 2003 bottom.

Point A was the previous rally high then, too (from January), and Point B represents the first time the S&P reached back to those highs. Notice how the cumulative a/d line at point B is well above where it was at Point A. It was leading the market, not the other way around.

I've said several times that I have no idea if this was

THE

low or just

A

low, and I will not know until well after the fact, so I won't guess at it, but I can tell you that previous major market lows have not seen a lagging advance/decline line.

I have also not taken my eye off the ratio of the Bank Index to the S&P as it saved itself early last week only to retreat again late in the week. It still hovers just above the breakdown level.

Remember, a break here does not tend to be coincident with a break in the S&P or the market. In September, it preceded the highs by almost a month. In December, it was about two weeks. But in both cases, it ultimately was not bullish for the market overall. Therefore I will continue to watch it closely.

As I said Friday, many of the intermediate-term indicators are now supportive of the market and declines should thus be contained for now, but the cumulative advance/decline line is not giving the all-clear on this being

THE

bottom right now.

Overbought/Oversold Oscillators

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

primer

.

This article was written by Helene Meisler, whose newsletter, "TheStreet.com Top Stocks," gives readers daily investing ideas based on a study of technical analysis.

Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information,

click here

. 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;

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