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Feb. 22, 2000

It occurred to me this past weekend that I have spent lots of time lately trying to find charts of stocks that would rally. Each time, I would sort of offhandedly dismiss the


as being in a bear market and focus on finding technology and biotechnology stocks to buy. But quite frankly, that's like saying there's an entire stock market that doesn't exist, and we all know that isn't true.

Who can blame investors for chasing the hot stocks? No one wants to own

Procter & Gamble

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Johnson & Johnson

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when all they do is go down. Money is exiting these stocks faster than you can say, "Sell 'em." And it's not as though these companies are in dire straits; it's simply that investors no longer have a taste for purchasing stock in companies where earnings are growing at 15% a year when they can purchase stock in a company that is growing 150% a year.

However, what I find most interesting about all of this is that half of the stocks in New Tech 30 are well off their highs -- in some, well in excess of 30% off their highs. This correction we're in the middle of may not show in the

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Nasdaq Composite

, but it is certainly showing up in many of the individual stocks. Now, that's not to say that there aren't plenty of stocks that are significantly higher, but that's not the point: With the Composite soaring to new heights, we would expect that to be the case.

The Nasdaq is currently overbought and has been for a week now. Since the day we reached a maximum overbought (Feb. 14), the Nasdaq Composite is essentially flat. As I've stated before, the technology and biotechnology stocks are in their own bull market, and when you reach an overbought reading in a bull market, it is time for a pause, not necessarily a change in trend. At this point, I do not expect Nasdaq to reach an oversold reading until later this week or even sometime next week.

While I don't expect this technology bull market to end overnight, I do want to point out that when 50% of the hottest stocks are well off their highs, it tells me that investors are leaving many in the dust in search of continued newer and newer ones. It's almost like the hot-potato game: They just keep tossing their money to the next, then the next, then the next, afraid to hang on to any one stock for too long. Oh sure, there are some who stay in and are rewarded handsomely for it, but they are getting fewer and farther between. The game is getting narrower and narrower. Just look at the failure in the number of stocks making new highs last week on that big rise Thursday: 336 new highs Thursday with the Nasdaq at 4548 vs. 380 on Jan. 24 with the Nasdaq at 4300. This tells us that it's getting harder and harder to find the winners.

Now let's take a closer look at the neglected NYSE for a minute. Believe it or not, this market has finally reached a moderate oversold condition. Let's not get too excited about that, since that's about the best thing I can say about that market right now. And the last time the NYSE reached an oversold reading, the rally was a fake-out, sucking you in just to spit you out. But that's the exact opposite of what goes on in a bull market: In a bear, rallies are for selling, not buying.

Now, what could make the NYSE a better place to put your money? It would begin with getting the market to a very deep oversold reading, followed by an oversold rally that fails and comes back down. In that subsequent decline, we would find prices lower, yet the oscillator would make a higher low. Just take a look at the higher low the oscillator saw back in October vs. the low in September. That was a positive divergence. However, for now, the oscillator continues to make lower lows, thus providing no signs of a positive divergence yet.

In addition to that, we would have to see the number of stocks making new 52-week lows contract, instead of the continued expansion we're seeing. Of course, if we should break those October lows in the


and the


with a reading of fewer than 565 new lows, then we would have that positive divergence. But for now, the expansion continues, and that says rallies are unsustainable at this point.

Speaking of new lows, it is important to note that there has been a marked pickup in the number of stocks making new lows on the Nasdaq: 127 on Friday. This is the largest number we've seen since that first-week correction in January (136), when the Nasdaq Composite was 700 points lower. And that number must begin shrinking before we can confidently speak of the end of this correction in the Nasdaq.

One of the main reasons I believe this to be just a correction phase in the Nasdaq is that the cumulative volume on the Nasdaq has yet to take a breather. It is my belief that since this indicator has survived and shown us strength throughout this incredible run, we will see this indicator falter before a change in trend.

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 Meisler trained at several Wall Street firms, including Goldman Sachs and 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 at