Nov. 4, 1999
Is there anyone out there who remembers when we didn't even call it the
? It was simply the OTC market. Somehow, Nasdaq 3000 doesn't quite have the same ring as
10,000, but it is a milestone all the same, and therefore worth a closer look.
What amazes me most about this move through 3000 on the Nasdaq is not that
found it important enough to have an entire special on it (I'm still trying to figure that one out!), but how many of the big names on the Nasdaq didn't participate in the rise to new heights. Heck, can you believe the Nasdaq made a new high and
, to name a few, didn't?
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Message Boards. Some might say that's good news because it means the market is broadening out; others would argue differently. These stocks are the generals, who for the most part have marched ahead without the aid of their army. Now the generals are being trampled by the army, or so it may seem.
In my opinion, the market breadth on the Nasdaq has rarely been a good indicator for the market. Maybe it's because there are so many stocks that make their debut on that exchange, only to languish and go nowhere, skewing that raw statistic. For that reason, I prefer to use the
McClellan Summation Index
when analyzing the Nasdaq.
You can see from the charts that the cumulative advance/decline line on the Nasdaq has been in a steady downtrend since the beginning of the year, yet the McClellan Summation Index, which is based on the same advance/decline statistics, but massaged differently, has fluctuated; it even made a new high in July. When using this indicator, I look at two factors. First, I look at direction. Up or down? In this case, it's up, which is one of the reasons I called for a rally a few weeks back. (The
has turned as well.) That's good news for the market. The other factor is magnitude. Are we making higher highs or lower highs? For now, we are quite a long way off from surpassing the September high in this indicator, which is bothersome but not dreadful. I would prefer that we were already higher than that level, but as long as the indicator is still heading higher, we should allow for more upside.
What is disconcerting is how far away we are from the July high. Sure, the Nasdaq has plowed ahead through its old highs, but this indicator tells us how many stocks are not participating to the same extent.
The number of stocks making new highs also tells us that individual stocks are not participating to the same extent as they were a few months ago. Yesterday's surge marked in at 189 new highs. That is still well shy of the 252 we saw in late June and, perhaps I'm quibbling, but it was also 2 shy of the 191 we saw on Friday. Now maybe falling shy by 2 should be considered a statistical margin of error, but then I would ask, if this market is so great, shouldn't the number be expanding, not holding steady or contracting?
However, this is again one of those indicators that does not necessarily time the market, so I tend to calculate it on a 10-day moving average. That, too, tells us there's been a great deal of improvement but again shows us a lower high vs. the two previous peaks. There continues to be improvement underneath, but not necessarily the momentum to rally a great number of individual stocks to new heights just now.
So, this is a good news/bad news scenario. It tells us the sentiment has changed from selling the rallies to buying the dips, and that is good news for the market. Yet at the same time, it tells us that perhaps there is still more work to be done on the downside. Could it be the market won't like Friday's employment number? Or maybe next week we'll begin worrying about the
meeting Nov. 16. Whatever the news of worry is, I believe it will continue to help flesh out the bases that are forming.
The one thing we don't want this market to do is get ahead of itself in a narrowing fashion, extending a small select group of stocks too far and leaving the rest behind. We did that in July and you saw the result. The market is still overbought, which doesn't mean we must come down, but it does make the market that much more vulnerable to bouts of profit-taking in the near term. I continue to believe many stocks will hold into any such selling. In fact, that would be good news, as it would help make the bases bigger.
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 Amgen, 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