Recovering From Jet Lag

The volatility in the fast-moving Nasdaq might continue for now, but it won't last forever.
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If you've ever experienced jet lag, you'll probably understand this market quite well. Having zoomed around last week, the

Nasdaq

is doing its best to get back on track. On the first day of the trading year, it was still in a very bullish zone, but then it began skipping through time zones faster than the speed of sound. But whether you take the Concorde or a regular jet, your body still requires some time to reacquaint itself with the new time zone. You know how it is: You wake up early, feeling pretty good, but then by midday you can't seem to keep your eyes open.

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Q&A with Helene Meisler The Nasdaq is no different: It got going quite early Monday, and while it gained some strength throughout the day, it began to fade late in the day. It was just too tired to maintain that fast pace.

But that's OK because we don't have jet lag forever. We do get over it, and so will the Nasdaq. The Nasdaq may make a new high in here, but that's quibbling over pennies. More likely, it's going to spend a bit of time digesting last week's wild ride before it resumes its upside action in a meaningful way.

Part of my reasoning is the timing of it all: We've got plenty of economic data toward the end of the week, although the Nasdaq doesn't typically care about what the bonds are doing, but we are also heading into earnings-reporting period. For the past few years, the market's developed a similar pattern before earnings periods each quarter: Profits are taken into earnings. Just go back over the past 12 months: We saw this pattern in October, July and April of 1999.

The market is also getting short-term overbought this week.

Overbought/Oversold Oscillator

In addition to the upcoming overboughtness, there's Nasdaq's momentum indicator. (See my Dec. 10

column for a discussion of this indicator). As you can imagine, it did finally come smashing through the zero line last Monday. While it came back through to the upside after yesterday's action, the numbers suggest it has not finished its work on the downside yet. Take a look at the October action, when this indicator was last under the zero line. It came smashing through on the downside in early October, reversed without having done much work down there, only to come right back down to form a "better bottom." During that period, the Nasdaq had come down from 2880 to 2680, went right back up to 2900, but was insufficiently prepared for that rise and came right back down to 2630.

And why else do I think this comparison should not be ignored? Because that was in October, the most recent time we had companies reporting earnings.

Alright, so how come I believe the market will be OK after this consolidation period? Well, for starters, there has been some improvement in the breadth of the market, which in turn has given way to an improvement in some of the indicators. For example, the

NYSE

is showing a greater overbought reading this week than it did two weeks ago (see chart above). This is typically a positive sign for the market, when it can reach a greater overbought, showing bullish momentum.

And with the breadth getting better, the

McClellan Summation Index

has gotten much better as well. No, it's nowhere near a new high, but the direction is up and that's more than we've been able to say about this indicator for quite some time.

And Nasdaq? Its cumulative volume has not faltered one bit. In fact, into last week's nearly 10% decline, the statistics fared better than they have on most "up" days. In addition,

Nasdaq's Unweighted Average

(derived from QCHAQ, found in

Barron's

) has made a new high, despite the Nasdaq Average failing to do so.

Now, here's my biggest challenge: Most of those highflying recent-winning tech stocks do not seem poised to participate in the same manner in which they have been. However, many new names are emerging in the health care sector as charts that are just now emerging from bases. (I welcome readers to drop me an

email with some names in this group, as I sense there are many more than I've found. While it is unlikely I will respond personally, if the chart is interesting, I will mention it in my column.)

Since I have no idea what most of these companies do or if they even earn a cent, I suggest you do your own research should you find the charts interesting. Some of the names I've found include

Immunogen

(IMGN) - Get Report

, which had a big breakout yesterday. (Oh sure, it can back and fill, but notice I made the chart two years in length to show the very long base from which it's just emerging.) I would also add

Visible Genetics

(VGIN)

, also just emerging from a long-term base.

If you'd rather have something Web-related, there's

Healtheon/WebMD

(HLTH)

, which hasn't yet emerged from this long base-building period and may take some time to do so. And if you'd prefer an old favorite with only three letters to its ticker, there's

Medtronic

(MDT) - Get Report

, which should run into some resistance in the mid-40s but is really developing into one great chart.

So in the near term, I expect this volatility to continue, but like the jet lag I'm currently experiencing (Nasdaq is not alone!) I don't think it will last forever.

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.