May 26, 2000

Sometimes when I just want to get a sequence of events straight in my head I try to write a chronology down to see if it makes sense. The sequence of events I witnessed this week shows how skittish investors still are, and there doesn't seem to be much on the horizon in the near term that is going to change that.

Here's the sequence of market events I recall from this past week. Monday, the

Nasdaq Composite Index

and the

Dow Jones Industrial Average

are down over 200 and they rally back. By Tuesday, many folks are saying that we've seen the bottom. But then Tuesday comes and the

Semiconductor Industry Report

shows growth slowing. Oh no! Gotta sell tech on that news!

Intel

(INTC) - Get Report

slides about nine bucks. Wednesday morning, it slides even further, but at 1 p.m. Intel tells us they are going to increase capital spending next year. Hoo-ha! Must be time to buy tech! We get a big intraday reversal. But then comes Thursday, and we see some follow through on the upside in technology. However, by midday a

Merrill Lynch

(MER)

analyst tells us

Goldman Sachs

(GS) - Get Report

won't make its numbers and tech comes down again.

Something here doesn't make sense to me. I thought the market was going down because of an economy that is too strong and interest rates that are too high. All I hear is that we need the economy to slow so the

Fed

can stop tightening -- then and only then can this market get better. So, wouldn't a slowing in the Semi report be good news? Heck, the report wasn't negative, it just said things are a tad slower. Isn't that what folks want to see? I mean, how do you think we get economic statistics that show slowing? It's gotta come from somewhere!

When Intel announces it is spending more, the buyers come in. Again, this does not make sense. How can you get a slowdown if the spending continues at a rapid pace?

Of course, selling tech because Goldman, a financial stock, is not going to come in at the high end is just another excuse to sell tech. We have been hearing for weeks about online brokers and how poor their results will be from lighter volume. I don't get it. Did everyone think Goldman was immune to lower trading volumes and fewer IPOs? This is more about investors looking for an excuse to sell.

In a bull market, negative news is bullish. In a bear market, positive news is bearish. And since it's not the news, but stocks' reactions to the news that's important, we should note that at this point that investors continue to look for selling opportunities rather than buying opportunities.

Let's take a look at how stocks act when they are in a bear market. You may recall the big run the oil services stocks made during 1996 and 1997. And then the price of oil fell during 1998, eventually hitting a low of about 10 bucks a barrel. For this reason perhaps

Baker Hughes

(BHI)

is somewhat instructive. You can see the breaking of support around 35 in mid 1998. The eventual holding at 15 in early 99, gives way to a rally.

But where did Baker Hughes go from there? Right back to 35. Prior support becomes resistance. Those folks who had held on because they just knew oil couldn't stay at $10 a barrel jumped at the opportunity to get out even. Six months later the stock was back at 15. And here it is, another six months later, back at 35. But let's not talk about where Baker Hughes is going from here, let's talk about the time frame. This stock broke down two years ago and is still not back to its high of 50. And oil is now at $30 a barrel!

Not all stocks will take that long to repair themselves; some will take longer and some will take a shorter time, but you can see all the work that is required before a stock can build a base.

Yesterday, I showed Johnson & Johnson

(JNJ) - Get Report

as an example of a chart that has now reached resistance. Ninety is not an exact level, it's an area. But so far it has spent about three weeks churning in this general area, not getting through. And maybe Johnson & Johnson doesn't need to come all the way back to 70 again, but it does have to keep backing off from this level before it can even hope to eat through all that resistance overhead. And that will take even more time. And it's not alone either. Look at

McDonald's

(MCD) - Get Report

. It left all that resistance overhead, beginning around 40. Building bases takes a long time, a lot of patience and much frustration.

Now these are just two examples of Old Economy stocks that made their highs about seven months ago and their lows about three months ago. And when we look at the big picture, we can easily see how much more work even these stocks have to do before they build any sort of base.

If you look at tech stocks, you can see how some have not yet broken from their tops, some are just breaking now, and still many others are searching for a level to hold on the downside. From this, it's easy to see why rallies at this point in time will fail. (Did you notice that I didn't highlight

Qualcomm

(QCOM) - Get Report

?!)

For these reasons, I would not look for any rally or any upside reversals to be sustainable right now. We may continue to get trading rallies, but I continue to believe they will not make any progress.

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 held no positions in any securities mentioned in this column, 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.