Market Stuck in Holding Pattern

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"Ladies and gentlemen, we are experiencing heavy traffic at this time and have been instructed to maintain a holding pattern before landing."

We have all heard the pilot come on the speaker with a comment such as this. It means sit back and watch us circle because it's out of our control and patience is the only course of action. That's what the market is telling us now.

We are in a holding pattern. When the market is given a piece of bad news, it gets sucked in and absorbed by buyers almost immediately, providing a downside cushion for stocks. Typically we would view that as a market positive, noting that the market doesn't want to go down in the face of bad news. But it doesn't want to go up either.

We also received some good news last week.

Alan Greenspan

and Co. decided to leave interest rates alone, taking that worry away from the market. And in world events,

Suharto

has resigned after 32 years as

Indonesia's

president, making way for some reforms. Another worry taken away. But the rally we saw on these "good" news announcements was dwarfed by sellers using the opportunity to lock in some profits.

The cumulative advance/decline depicts this underlying deterioration in stocks. The a/d lost nearly 1,000 points last week, or about 5%, while the

Dow

and the

S&P 500

went up slightly. These negative divergences are most obvious when we see that the cumulative a/d has lost nearly 30% since its high in early April, yet those two averages are trading close to their all-time highs.

However, this deterioration is not so evident in individual stocks. Take the financial stocks for example. They were the champs earlier this year, rallying nonstop into the

Citicorp

(CCI) - Get Report

/

Travelers

(TRV) - Get Report

merger announcement.

J.P. Morgan

(JPM) - Get Report

, having rallied from just under par in late January, was up more than 40% to the mid-140s by the time the merger frenzy arrived in April.

Subsequent to that announcement investors cashed in. By late last week Morgan was down nearly 20 points, at 128. It had broken its previous lows at 130 and looked ready to go lower. But rather than breaking and continuing its slide, Morgan rallied. There is no follow-through on the downside.

As for the positive charts, many are having trouble breaking through their old highs. Some have broken the old high by eighths or quarters only to be turned away again. There is very little follow-through on the upside as well.

We've begun to notice a symmetrical triangle pattern developing in the S&P. It's got a series of lower highs and higher lows. It is said that symmetrical triangles present us with a picture of doubt. There is often nothing to do but wait for the market to make up its mind as to which way it wants to go. A breakout that comes when the pattern is two-thirds to three-quarters into the apex should be considered the new direction.

But there's a problem with symmetrical triangles: The farther into the apex they go without breaking out, the more likely they are to continue their dull drifting and sideways action. Therefore it seems that if the S&P does not have a definitive breakout this week, we can expect more of the same churning.

The individual stock charts also show directionless patterns. As they get ready to break down, they rally. As they get ready to break out to the upside, they slide.

Keeping that in mind, the stocks we wrote down on the positive side of the ledger this week were noted as "uptrend still intact" and not necessarily great, buyable charts. That list includes the retailers such as

Sears

(S) - Get Report

,

Gap

(GPS) - Get Report

and

Dayton Hudson

(DH)

. We also note that

IBM

(IBM) - Get Report

is on that list, as are

General Motors

(GM) - Get Report

and

DuPont

(DD) - Get Report

in the Dow.

AMR

(AMR)

is in a different positive category, as it has been in a correction for about four weeks; having tested its support levels, it looks buyable.

I hesitate on the negative side since nothing seems to want to break down, but some stocks need mentioning.

Federal Express

(FDX) - Get Report

is a sale at 68;

Best Buy

(BBY) - Get Report

may be the best sale back at 68-70;

Gannett

(GCI) - Get Report

looks shaky. In the Dow,

Disney's

(DIS) - Get Report

rally last week came on declining volume and that stock should be sold into strength. Keep your eyes on

Coke

(KO) - Get Report

too. It appears to be failing to make a new high here and any move below 76 will spoil that chart.

We don't know what it's going to take to move this market out of its holding pattern, but at this point, we'll take anything. If we circle too long, we'll run out of gas.

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets for TheStreet.com that normally appears on Fridays. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. She appreciates your feedback at

KPMHSM@aol.com.