Feb. 15, 2000

Bear market rallies lack enthusiasm. Judge for yourself the level of enthusiasm in Monday's

Dow

rally, but I fell asleep watching the tape because it was moving so slowly. Back when it was typical for the

NYSE

to trade 500 million shares a day, the tape moved at a pace that was readable. But with more than a billion shares on the NYSE and more than 1 1/2 billion shares on

Nasdaq

these days, I usually find that I must really concentrate on the tape to catch it all because it moves by so quickly. That wasn't the case Monday.

But that's how it is in a bear market rally: The volume is lower on the rallies than the declines. In the final three days of last week, the Dow fell 258, 55 and 218 points, respectively. Those three trading days saw more than 1 billion shares traded each day. But in Monday's rally, when the Dow tacked on 94 points, the NYSE couldn't even break the billion-share mark.

And if that weren't bad enough, the upside/downside volume put in a negative reading during yesterday's rally, forcing the cumulative volume to move still lower.

On the flip side, the Nasdaq struggled most of the day in negative territory, only to rally late in the day. But look at the statistics on the Nasdaq, which were much more impressive than those on the NYSE: Upside/downside volume was positive and so was the advance/decline line. And yes, the volume was lighter than usual, but isn't that the way it's supposed to be when a bull market is correcting?

The Nasdaq is now maximum overbought, which tells me most stocks should begin to have some sort of a correction, be it down or sideways. This chart shows the current overbought reading is at a lower level than the previous overbought reading, which says this correction could be a bit longer in terms of time than the two previous 10% readings we had in January. Those two lasted four or five days; I expect this one will play itself out differently.

You can see how January's overbought level made a higher high than the previous overbought level in November, which tells us how strong the market was back then. As we go further and further into a bull market, it's natural for the market to get narrower and momentum to wane. You see that the frenzy with which Nasdaq stocks were bought in the last two months of 1999 cannot continue forever; that's easy to understand. This results in the type of short, sharp corrections we saw during the first and last weeks of January. Eventually the corrections get a bit longer in duration, and the time factor becomes more meaningful. I expect this one to be another swing down, but I expect it will not happen in just a few trading days. I also expect it will be a rolling correction, which moves through different stocks, perhaps not all at the same time.

For example, look at

Microsoft

(MSFT) - Get Report

, which had a great run from the mid-80s to 120 in December and then went into a tailspin, coming all the way back to the mid-90s. It rallied, but to a lower high than it had before, and it has now come back down on a negative news item. For now, it's still holding above its January low; it may break it, but it does have all that support back there in the low 90s. But what's really important here is the time factor: Microsoft has been correcting for about seven weeks now. Just go through the chart book and you'll see how many stocks look similar to Microsoft.

Microsoft has done absolutely nothing wrong. I see it as a stock that's simply backing and filling, forming a base from which to launch another run upward; see my earlier

discussion of

Yahoo!

(YHOO)

for an example. That base-forming takes time. All this swinging from overbought to oversold that we see in the Nasdaq market these days is simply helping the bases form. Just look at

CMGI

(CMGI)

,

Akamai

(AKAM) - Get Report

,

JDS Uniphase

(JDSU)

,

Liberate

(LBRT) - Get Report

,

Commerce One

(CMRC)

and a host of others: There's a lot of correcting going on.

It's becoming harder and harder for me to find technology stocks I can recommend now, but that's because I'm not a fan of reaching for stocks that are up already, and those that are down don't seem to have done enough work to launch a sustainable rally. However, the oil-service stocks I highlighted last week are quietly pushing their way higher.

This list includes

Global Marine

(GLM)

,

Nabors

(NBR) - Get Report

,

R&B Falcon

(FLC) - Get Report

and

Rowan Drilling

(RDC)

. Many of these charts have recently emerged from a base, have recently had minor pullbacks and seem ready to go up again or are now just emerging from their bases.

And with oil at more than $30 a barrel, these stocks ought to find someone who wants to buy 'em!

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 Microsoft, 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.