March 14, 2000

Ever since the


dipped into its bear market while the


soared ahead in its bull market, there has been very little upside relief for the NYSE and very little downside relief for the Nasdaq. By now, everyone's familiar with how to buy the dips on the Nasdaq, so perhaps we need to review how a bottom forms for those one-, two- and three-letter old friends on the NYSE.

Just to review, there was a time when these NYSE stocks were friends. Once, every portfolio owned the likes of


(KO) - Get Report



(WMT) - Get Report


Procter & Gamble

(PG) - Get Report



(MRK) - Get Report

. But for the past few months, these stocks have been dumped. And just when you thought it was safe to go back in, they got dumped again.

We're all familiar with how a breakout from a base in a bull market picks up momentum as it emerges from that base. We like to see increasing volume on such a breakout. And we don't begin to worry about being long until the volume on the upside slacks off from the torrid pace we'd been witnessing. If we are long, we hate to see a stock rise on light volume; we know that's not a good sign.

In fact, it's usually the sign of a top when stocks do that.

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But what about the downside? It really isn't much different. We just need to turn the chart upside down. When a stock breaks down from support levels, leaving a top behind, it will typically pick up volume. At some point, that volume becomes explosive, usually at the point where investors can no longer stand the pain and they say, "Hit the bid and get me out." They have lost faith that the stock can even muster a rally for them to sell into.

That high-volume crescendo is typically a sign that we are close to a bottom.

After such a selling climax, we will see the stock snap back to the upside. This is commonly referred to as a dead-cat bounce -- it doesn't go very far, and it does so on relatively light volume. Investors don't trust the rally. How could they? They've finally made the decision to dump the darn stock -- they're not about to cozy up to it so soon! No, it takes quite a while for investor confidence to return.

After that dead-cat bounce, we typically see a renewed slide. Should the volume pick up once again on this slide, we know the chart is still bearish and that sellers are not yet through. However, should the stock come back down, hold at a higher low and do so on lighter volume than the first trip down, we're seeing the very first signs of the decline's end.

However, in the same way a bullish stock that rallies on lighter volume doesn't simply roll over immediately, a bearish stock that falls on lighter volume doesn't zoom ahead right away. In the bull case, investors who missed the boat will think this is their chance to get on board, but the folks who have been in the stock for a long time begin to take some profits. We call this distribution, and it is a process, not an event. When a stock makes a bottom, some folks who are glad for a rally see it as an opportunity to sell, and those who didn't own it may view it as an early chance to get on board. This tug-of-war pulls the stock back and forth, eventually forming a base. But just as distribution takes a long time, so do bases.

We're beginning to see very early signs of some of the Old Economy stocks holding. A few have shown lighter volume and higher lows on their second trip down. These stocks won't likely run away on the upside because so much resistance is overhead. And we all know about this whole New Economy/Old Economy situation, but the general public is now just figuring it out. Procter & Gamble's news put it in the public's eye. And once we hear taxi drivers discussing it, we know it's close to being old news.

Not all of these New Economy stocks will end up winners in the long run, just as not all these Old Economy stocks will end up losers. I often have showed the chart of the Nasdaq Unweighted Average, but today I will show a chart of the NYSE Unweighted Average. Curiously, this chart has not made a lower low than its October low, the same way the

Dow Jones Industrial Average

, the cumulative advance/decline line and NYSE cumulative volume have. For this reason, I believe there's an underlying improvement on the NYSE that's extremely early in the making.

If there were pages and pages of charts with bases, I'd call it a lot more than improvement; I'd call it a change in trend. But the bases are few and far between. I believe this is the very early stage, with many fits and starts. But remember: This is a process, not an event. And in some stocks, the process has begun.

I've shown the

Best Buy

(BBY) - Get Report

chart here before and the improvement continues. You can even draw in that big downtrend line and see the breakout that would occur should this stock get itself through 65. It is likely only about two-thirds through its bottoming process, but it is much further along than most others.

There's another chart that's even earlier than Best Buy, and is not for an Old Economy stock, even though it has acted like one since it announced its merger with one:

America Online


. Not only does it have resistance in the low 60s, but the resistance is really quite evident at 70. However, the slide seems over and the process of building a base seems to have begun.

Again, this is a process, which I expect to develop over many weeks or months, not days.

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 was long America Online, 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