Market internals kept improving. The speculative excess in Internet stocks kept receding (at least temporarily). The tax filing deadline has long since passed (you filed, didn't you?). The bond market improved. There were no major profit warnings, no troubling events on the political or military front. And no rumblings from the

Federal Reserve


So why, oh why (must I be a teenager in love), did the

Nasdaq Composite Index

suffer its second-worst point decline in history

today, while the

Dow Jones Industrial Average

fell 53.36 after being up more than 270?

Given none of the "conventional" reasons were evident, we submit for your inspection a group of technical indicators that have been flashing signals the stock market is headed for a heartbreak for some time now. Brace yourself, you are about to enter:

The Technical Zone


Admittedly, the

Tom DeMark Sequential Indicator

, the

Bradley Indicator


William Erman's Pivot Point Analysis

aren't household terms, and even proponents admit they're somewhat arcane. But each of these indicators is "telling us between the 9th and 12th

of April we'll have an extreme high in the stock market," said Ed Solari, director of foreign exchange at

Bank of Montreal

in New York. "The odds of having this much correspondence at one time gives us a warning that if you're running a portfolio of stocks, now is a good time to lighten the load. This cluster of indicators is unlikely to happen and is likely to happen for a reason."

The level of influence such tools have on market professionals is debatable and you'd be hard-pressed to find any major Wall Street strategist touting Tom DeMark's or William Erman's work. But that's because the strategists don't want people to know they aren't self-contained gurus, Erman said in an interview this evening. Erman, founder of

Ermanometry Research

, said his clientele is almost "purely institutional," including many hedge funds and commodity trading advisers. However, he declined to name names.

One past client was

Tudor Investments

, a money-management firm that was one of the highest-flying commodity hedge funds in the 1980s, he said. Curiously enough, Tom DeMark worked at Tudor many years ago, according to Solari.

A source at Tudor said the firm does not employ DeMark's indicator and Erman conceded he's no longer on retainer. DeMark was also previously employed by Leon Cooperman, founder of

Omega Advisors

, Solari said. Omega declined to comment.

Using Technical Tools as an Excuse?

So it's possible, just possible, that institutional investors -- who may have already been viewing the market with caution -- have been using these technical tools as an "excuse" for the recent selling most evident in the

S&P 500

and Nasdaq Composite.

"These are very esoteric technical indicators that people use," said one Wall Street professional, who requested anonymity. "But there's not one that works all the time and even indicators that work aren't infallible. Technical analysis is based on time and price in simplest sense. It's a guidepost. They're guidelines, not hard and fast rules."

Each indicator is a so-called timing tool, which attempt to pinpoint important market tops and bottoms using mathematical analysis. The Bradley Indicator has been popularized by

Jerry Favors -- he of those sometimes maddeningly confusing, Armageddon-is-coming-whoops-no-it's-not interviews on


every Friday.

Erman's work is based on the theory there are common qualities to pivotal market days going back hundreds of years. Thus, those key days can be forecasted years in the future, Erman said, comparing the stock market to a spider which unconsciously makes a web that is geometrically perfect. However, "not every day with those relationships will have those turning point."

April 12, for example, had been identified as a "major interchange" by Erman's work, a point at which the market, which he compared to tractor pulling five trailers, could either "turn or go straight."

The S&P 500 did top on a closing basis April 12, at 1358.64. But the average rose as high as 1362.10 intraday the day after. Meanwhile, the Dow industrial average continued to set record highs until today's 0.5% setback. Still, the Dow's intraday high of 10,765.74 today eclipsed its previous intraday best of 10,692.49 set last Thursday.

Erman's system (which only analyzes the Dow and the S&P) incorporates intraday moves. Therefore, "conclusion one is, the macro trend in the Dow is not over and cannot be for another four to five months," he said. "Our feeling is right now is we will have a retreat

but we do not believe there can be anything more than a 15% to 20% decline. No crash, nothing like 1987 as long as the macro trend is intact. The fact the S&P has not exceeded its April 13 intraday high will serve as a drag on the Dow

but it's only a matter of time until the S&P exceeds the high it made last week."

For more on Erman's theory, visit, particularly "Understanding the Properties of E-Zones."

4/15 Was Day 13 on Step 3 -- Not Good

Solari, meanwhile, was most focused on the TD Sequential Indicator, the brainchild of Tom DeMark, author of

New Market Timing Techniques

. The indicator employs physical chart patterns which must occur in three steps to trigger a top or bottom, he explained. Step No. 1 is when a daily chart shows nine consecutive closes above the close four days previously. Step No. 2 is a retracement back to the low of the cycle. Step No. 3, after the retracement, contains 13 days with a close above the high two days prior.

As confusing as that may be, the important thing is April 15 was the 13th day of the third step on the Dow's chart, Solari said.

The indicator is "extremely mechanical. Once we get to the 13th close -- or open -- no matter how you got there, if you're at an extreme then you fade and sell against it," he said. "I'm not certain why it works, but it works. The Dow should really start playing catch up with the S&P on the downside. There's no chance in the indicators I'm looking at the S&P is going to play catch up."

So why should you care about what a currency expert says about the stock market, and why (other than for personal reasons) does he bother?

Admitting that he's not an expert on equities, Solari said in regard to the former: "My belief is indicators I look at are not specific to currency markets. They are universal to all markets."

As for the latter, his concern stems from a belief the equity market is at an "extreme" level and thus "has the potential to influence other markets," including the currency market.