Choppy Waters Ahead for the Market

Despite her recent sanguine comments, the Chartist still maintains that the market will be choppy through year-end.
Publish date:

Oct. 26, 1999

So, I finally make a few nice comments about this market and my mailbox is full of folks asking me how can I possibly think this market has turned bullish! Perhaps it's time to make my market view absolutely clear yet again: There is no change in my opinion as I continue to believe we will have a choppy market through year-end. And choppy means ups and downs.

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On Friday, I pointed out how few bases there were in the charts, making me believe that this is not a great bottom. That is still the case. However, go back to that discussion where I describe how a bottom forms, with lots of ups and downs. This is just one of the ups. If this is going to develop into a bottom worth buying for, then we must begin to see improvement on the rallies, not just on the declines. And with the financials lifting so far off their lows last week, we put in some decent statistics on the upside for the first time in months. Why ignore it?

As for sentiment, the anecdotal evidence from the emails I've received says there are so many who have finally jumped over the fence to the bear camp and now that they're there, they feel they must be vindicated. No, it's not enough for a great bottom, but it certainly speaks of the sentiment shift we've been seeing. We are currently oversold. Of course, just because we're oversold, we do not need to rally; we can simply go down with less momentum than in the past. However, I believe there is still more left in this oversold rally.

First, let's take a look at the all-important financial sector. The

New York Financial Index

has rallied quite a bit off its lows, almost 10%. It rallied right back to resistance at 500 and backed off on Monday. But since it began this decline in mid-May it has made lower lows and each rally off those lows has failed to make it back to the previous peak, giving us lower highs too. Friday's rally eked out a higher high by pennies, so for the first time in six months we have not made a lower high. (Neither the


nor the


nor the


has done what the New York Financial Index has. I figure we've got to give credit where credit is due.) From that action we can typically surmise that on any trip back down we will now hold at a higher low.

And since the financials were leading us lower, especially in terms of stocks making new lows, I expect that any leg down to a new low in the Dow or S&P would show a positive divergence in the number of stocks making new lows.

There is another indicator I'm watching rather closely in terms of the financial stocks: the ratio of their performance vs. the S&P. This chart shows how long these stocks have been underperforming the S&P for over a year now. Should this indicator cross the downtrend line I've drawn in, we would certainly have to acknowledge that change in trend. I will not guess at a crossing since it threatened to cross this past spring and failed to do so. I prefer to have patience and wait since that sort of trend-change would be so significant that it shouldn't matter if we miss a couple of points on the upside.

As I've said before, bottoms don't form in a day or even a couple of weeks, they take more time than that. Think of a game of tug-o-war with the teams evenly matched. On one side we have the bulls, on the other we have the bears. They tug each other back and forth, over and over again. Then suddenly, one side gets the other so far over the line that you think it's all over. But then the anchor on the team about to lose digs his heels in and pulls his team back from the brink. Isn't that what happened last week with


(IBM) - Get Report

? The bears were "winning" but the financial stocks dug their heels in and saved the team. On Friday, they continued their winning momentum only to be brought back by technology late in the day. Back and forth, back and forth. There are still so few bases to choose from.


(K) - Get Report

is still on the list, as is

General Mills

(GIS) - Get Report

. I continue to jot down

Procter & Gamble

(PG) - Get Report

on the positive side, too.

I am beginning to see some stocks, which have held at potential double bottoms. I call these "potential," since I am not sure if this is going to be "the low" or if it's simply another oversold rally, but they are rally candidates. This list includes





(DAL) - Get Report



(T) - Get Report

. On the negative side, there's


(CAT) - Get Report



(DD) - Get Report




in the Dow.

And I believe the downsides on


(INTC) - Get Report



(DELL) - Get Report

are not yet complete. In tug-o-war, eventually one team gets tired enough to throw in the towel.

There is eventually a resolution in a choppy market as well, but as I've said before, the back and forth of it requires much patience, something most of us who play the market are lacking.

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 AT&T, 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