With this column, we introduce John Roque, the technical analyst for Arnold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S. John trained at Lehman Brothers, where he developed, under the direction of noted technical analyst Steve Shobin, a database of indicators dedicated to the international markets. John is a frequent guest on
and welcomes your emails. As always, let us know what you think.
Someone once said there are three great questions in life:
- Right or wrong?
- Good or bad?
- Friend or foe?
It's obvious this guy wasn't focusing on the market or he would've included the following:
- Should I be bullish or bearish?
- Should I chase this bounce?
- Have bonds bottomed?
- Will there be a Subway Series?
OK, so maybe these questions can't compare to the top three in moral or metaphysical terms, but when clients call, you can bet they are looking for answers to the latter three. Especially the Subway Series thing -- after all, it's been 43 years since we last had one!
Anyway, here's my take on the big four questions in life, as of today:
Bullish or bearish?
My view is that the market remains longer-term bullish. Why? Because all of the major averages remain above long-term trend lines, above 200-day moving averages, and my bellwether (and the most important stock in the world),
, is still bullish. While there was a month's worth of bleeding (the internal injuries were worse than what occurred in 1998 and through March 1999), there hasn't been enough deterioration yet to call for a total amputation.
But boy, oh boy, was it close! Despite the benign
Producer Price Index
report on Friday (0.2% in July vs. a consensus estimate of 0.3%) and the lure of the siren songs to join the rally, we still don't believe the near-term environment has improved sufficiently enough to put the pedal to the metal. I thought I was set up right for a bounce last week, but I didn't think it would've been a superball-type bounce. In sum, the near-term environment has stabilized, but it is far from bullish.
Should I chase this bounce?
Here's the way I've been playing it -- breakouts, breakouts and only breakouts. Because bearish bonds, strong oil, a weak dollar, poor performance in utilities and financials, weak Euro markets and a pickup in the
Commodities Research Bureau Index
, or CRB, have all conspired to suggest limited upside for the broader market, I have stuck exclusively to recommending breakouts.
What is a breakout? For me, it's a stock that moves to a new high, or moves above resistance by completing a consolidation phase. Such action is important because it means the stock has removed its shackles and is ready to run -- and this is usually due to strong fundamental information (something no good technician should ignore because, after all, fundamentals always win). Some recent examples of breakouts would be
in early August,
in late April,
in early August and
in early July.
So, in this kind of market, I would be very choosy: None of this "What do you think about this one? It's on support." Or, "This one's down already -- I can buy it." Just breakouts.
Have bonds bottomed?
This past Friday's
action suggests bonds
have bottomed. The September futures contract for the 30-year T-bond traded as low as 113 9/32 just after the release of the PPI, embraced the lower-than-expected number and closed up nearly a point (30/32) at 114 18/32. Coincidentally, the 113 9/32 low on Friday was an exact retest of the June 24 intraday low. The bond bulls can now lay claim to a successful, sweet-as-can-be, kiss-off-the-glass retest and a potential double-bottom.
While the bond
have bottomed, upside potential is still another matter. Oil is still strong (I'm still looking for $25 a barrel), the dollar isn't anything to write home about and a pulse in the CRB says pay attention. Besides, to quote a recent
story on the
, there are:
Twenty-five "shortages," nine "lacks" and six "constrains." These are not the kind of words that will allow Fed Chairman Alan Greenspan to experience a deep state of relaxation in his morning bath. ... Rarely have there been so many references to the potential for inflationary pressures in such a consolidated space.
I'm still of the opinion that interest rates are going to move to 6.5%, but if the 30-year bond can absorb any bad news and doesn't make a new low beneath 113 9/32, then I think the worst will be over for bonds.
And what about the Subway Series?
Let's not get carried away just yet. The
still need to get by the lumber company of Cleveland, and there's no assurance the
will even make the playoffs. The
don't roll over for anybody, and the
are neck and neck in the
National League Central
. Four good teams and only three playoff spots -- see what I mean? Oops, back to the market.
What do I think?
I say the market gets the benefit of the doubt, unless
of the following four things happen:
Treasury-bond futures close under 113 9/32.
The most important stock in the world, General Electric, closes under 100.
Citigroup closes under 40.
The S&P 500 closes under 1,275.
Maybe some of you are thinking, "Yeah, right. Who's got time to wait for these four things to happen before figuring out if the market is bearish or not? I read stuff like this so that I can anticipate a market move." Sorry, that's the best I got, and it's the way I play it: In other words, the market has got to
me to become negative.
Further, these are my most important hitters in my lineup, and if they go down, it's going to be a long losing streak. Just imagine for a second that
of the Mets go down with injuries. (My father is going to have a fit if he finds out I am even thinking of this as a possibility.) You don't really believe -- with all due respect, of course -- that
, et al. are going to be able to carry the load, do you?
John Roque is the technical analyst at Arnold & S. Bleichroeder, a New York-based investment brokerage firm specialing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the 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. Roque appreciates your feedback at