Back to the Starting Line

Think of a correction as starting a race. Everyone has to be at the same place to take off together.
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The market moves so fast these days that if you blink or turn away from the screen, you might just miss a big move in the market. Well, at least some kind of move. Bob Rubin's resignation decline lasted all of 15 minutes. Perhaps that was his 15 minutes of fame, at least according to so many pundits: It seemed unanimous that while Rubin did a good job, he won't be missed.

Can you imagine that? Some

said he was the best

Treasury

secretary since

Alexander Hamilton

, yet he won't be missed? So many

insisted that he was just one cog in the wheel that can easily be replaced. Perhaps that is true. I don't have a strong opinion either way, but what I do find interesting is that if these folks believe that Rubin won't be missed, why is the media focusing so much attention on his resignation? It certainly wasn't a slow news week, was it?

Once again, we have Russia

falling apart, yet no one seems to care. The riots at the U.S. Embassy in China were largely ignored. (And I live in Asia -- China was not the only country where there were riots against the U.S.) Even Kosovo was shoved off the front page for a day in favor of Rubin's resignation. Yet he won't be missed?

Ah, but this is the same group of strategists who thought the market was great when technology and the Internet were hot and everything else was not. But now that tech has cooled off and the Internet stocks have lost their luster, these strategists say it's OK because there's been a broadening out of the market. Hmm, seems to me those great cyclical stocks have gone nowhere for weeks now. Neither has tech. Or the retailers. Or the drugs. Or the banks. Broad? Maybe, but more likely that nothing has moved in tandem.

The drugs, out of favor for the past two months, found some bottom-fishers in the past few days. Take

Schering-Plough

(SGP)

for example. A month ago, it was trading at 60, and now it's at 50. Last year in mid-May, the stock was trading at 45. The market has zoomed ahead a zillion points in 12 months, yet Schering-Plough has done nothing.

And how 'bout

Intel

(INTC) - Get Report

? It traded at 72 in January, and now it's at 60.

Microsoft

(MSFT) - Get Report

is no different.

Yahoo!

(YHOO)

was also higher at the beginning of the year than it is now. Yet the

Nasdaq

has tacked on 200 points since the beginning of the year, almost 10%.

Oh sure, plenty of stocks are higher now than they were before, such cyclicals as

Caterpillar

(CAT) - Get Report

,

Alcoa

(AA) - Get Report

,

AlliedSignal

(ALD)

and

International Paper

(IP) - Get Report

. Oh, wait a minute, Caterpillar was 61 last May, exactly where it closed yesterday. And International Paper traded right here in April and May of last year too. (Did you notice how

IBM

(IBM) - Get Report

was 90 points of the 107 that the

DJIA

tacked on yesterday?

J.P. Morgan

(JPM) - Get Report

was probably the rest of it!)

These are just a few examples of why the number of stocks at new 52-week highs is an important indicator. It matches stocks against themselves. How are they doing relative to their own performance one year ago? In this case, not very well.

I have only reproduced the chart back 2 1/2 years (too much more data made it look scrunchy and illegible) but you can see how when the market is rising in a healthy manner, the number of stocks at new highs exceeds 200, or even 300 in most cases. We currently are running around 100 new highs each day. That is simply not healthy.

This is not an indicator that tells you when to sell; it is an indicator that depicts how individual stocks are trading. Let's just say you're a buy-and-hold type of investor, and you bought

Cisco

(CSCO) - Get Report

in January. Let's say you did not catch the high, but rather bought it at 110 in the middle of the month. The stock runs to 118 the first week of February. You feel brilliant. It immediately plunges to 92. Now you feel dumb for not selling it at 118. You hang on because you're a long-term investor. In early April, you are rewarded as Cisco climbs back to 120, making a new high.

Everything is great now, right? The stock's at a new high -- it's gotta keep on going. Nope. Back to par in just over a week. Back to 120 a few days later. Another correction, then great earnings. Where is it now? Same place it was in early February, at 118. An investor has not made money in this stock in the past four months because this stock can't seem to make a new high and maintain it. This does not make it a negative chart, but it does depict how hard it's been to make money in such former winners these days. They are correcting their big price run-ups from the October lows. This is why we care about the number of stocks making new highs. And right now, they are telling us that very few stocks have caught a real uptrend lately.

The cyclicals are fine charts but many (not all) are in the same place tech was in January: ready to consolidate their big gains. For the most part, the huge run-up phase is over for now. It's correction time for them. In the DJIA, the only name I write down now as a buyable cyclical is

Union Carbide

(UK)

(perhaps that takeover news will resurface?).

Hewlett-Packard

(HWP)

is still a really good chart in the DJIA, too; it measures to well over par.

Elsewhere,

Colgate

(CL) - Get Report

will looks good in here. So does

Gannett

(GCI) - Get Report

.

On the negative side,

General Electric

(GE) - Get Report

is really having some trouble on the upside these days.

McDonald's

(MCD) - Get Report

acts awful and should be sold into any bounce.

Outside the DJIA,

Anheuser-Busch

(BUD) - Get Report

should be sold into this rally.

Gap

(GPS) - Get Report

(why couldn't it rally on the best earnings ever?!) should bounce and be sold into that bounce. The same is true for

Dayton-Hudson

(DH)

and

Home Depot

(HD) - Get Report

.

Merrill Lynch

(MER)

has had enough rallying for now.

So, maybe Rubin will not be missed, and the markets will not care that he is gone. But that has nothing to do with the action of stocks. Until stocks making new highs can do so and maintain those highs, it is unlikely that this rally can sustain itself much longer. Think of a correction as starting a race from the beginning. What we need is everyone back at the starting line at the same time so they can all take off together. Until then, I remain cautious.

New Lows

Overbought/Oversold Oscillator

Cumulative Advance/Decline Line

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 Cowen, and has worked with the equity trading department at Cargill. At time of publication, she was long Hewlett-Packard, 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

KPMHSM@aol.com.