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As almost everything's been said that needs to be said about the economy, stocks and the market, I thought it would be a good idea to go over some of the questions I've gotten during the past few days.

Q: Aren't we oversold enough to rally?

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Although the


is actually less oversold now than it was in March and April vs. its 200-day moving average, most other market momentum measures are way oversold -- enough that there should be a rally. Shoot, there should've been a rally already.

Q: The Federal Reserve cut rates again. That's got to be good, right? And it's providing a ton of liquidity.


You're right. That is good stuff. But stocks have been unable to embrace this good news, and that's not a good sign. I first wrote in a client report in February that the mantra of "you've got to buy stocks when the Fed cuts rates" was going to be broken in 2001; so far this idea still seems to be correct. Ultimately, I do think that the Fed's activities will be a plus, but the charts are suggesting that lower levels are in the offing first.

Just in case you're keeping score at home, the Fed's rate cut was the eighth this year and the third made between meetings. The

fed funds rate is now down to 3% from 3.5%, its lowest since 1994, and down from 6.5% since the beginning of the year. The first five cuts this year were half-point cuts, while in June the Fed began moving in quarter-point increments, probably as a result of the "stimulus" it had already put in place.

Outlining Possible Positives

Q: Companies are buying back stock. That's another good sign, right?


It should be a good sign. But like the Fed example, stocks have yet to embrace this good news.

Q: What are you paying attention to here?

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Aside from technical indicators, I'm watching very closely the action in the dollar vs. the yen and euro. I'm OK with the idea that the dollar can deteriorate gradually vs. both the yen and euro, but I'm very uncomfortable with the idea that the dollar can deteriorate sharply vs. both the yen and euro. I'm also watching the Philadelphia Stock Exchange Semiconductor Index,


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and the FTSE Bank Index. These three aren't confidence-builders.

Q: What about all of this patriotism? This should be good for stocks.


God bless America. I'm as patriotic as the next guy -- the flag is flying in front of my house, I go to the local Memorial Day parade, my dad was an MP in the Korean War and some uncles fought in WWII -- but aren't we all taught that investing should not be an emotional exercise?

Q: Bottoms are hardly ever neat, and most often they're ugly events. Why can't this be the bottom?




be the bottom. But it also

may not

be the bottom, and so far the evidence says it isn't. Bottoms are indeed ugly events and involve teeth-gnashing decisions, so that part is right. But it's important to remember that in order to have a bottom, stocks, indices and markets must stop going down first. Here's something else I know about bottoms: Investors have been anticipating a bottom for more than a year, and each attempt to call/buy a potential bottom has been wrong. The bottom seems elusive because most investors haven't thrown in the towel. When the bottom appears, if it is legitimate, you won't have to be buying at that moment because there will be a retest and plenty of time to make plenty of money thereafter. And, if you're a retail investor, please tell me why, why, why you feel compelled to be there before a bottom is legitimized anyway?

Q: What's the historical precedent for recent action?


Everybody has tried to compare prior geopolitical conflicts and market responses in order to show what may transpire. Most of these examples are providing little, if any, guidance because the geopolitical conflict happened in the U.S. Geopolitical conflicts don't happen


; the only two I can remember are Pearl Harbor in 1941 and when the British burned the White House in 1812 (and my data don't go back to 1812). So, because the attack happened here, I think there's no historical precedent.

In Search of Support

Q: How about support levels?


Support levels are areas where stocks, indices or markets


stop declining. Imagine you're on the 6 train (Lexington Avenue local, for nonsubway riders) going downtown, and the train is supposed to stop at Astor Place. But the conductor says, "We're bypassing Astor Place because of police activity in the station. The next stop is Bleecker." You expected to stop at Astor, but now you have to alter your plans because the train didn't stop where you expected it to stop. That's what a support level is like: It's an area where investors were active in the past and are expected to be active now, but there's no assurance that the expected behavior will develop. When a support level is broken, the trend gathers new momentum. And, as we've seen in this bear market, there's no respect for support levels.

Q: If there is a rally, how do you play it?


If there is a rally, it will likely be short-lived and prove unsatisfying to long-only investors, and a retest will have to follow. I think it's important to use trend lines as guides for potential rallies. If a rally develops, I want to use the trend-line levels as barriers and guess that further price gains at levels above the trend line are unlikely. So the trend line becomes the level where I want to reduce long positions.

Q: How low can we go?


Who knows? I wrote a client report in late July in which I looked at all periods since 1900 in which the

Dow Jones Industrial Average

was burdened by a downward-sloping 200-day moving average. The average decline for such an event was 22.4%. The 200-day moving average for the Dow peaked at 10,889 on Feb. 8 and Feb. 9, 2000, and started a slow decline thereafter. So by taking the Dow at that time and subtracting out a 22.4% drop, we get 8302.55.

I had been using 9100 as an area of potential support, but like in my subway example, the train didn't stop to let passengers off. While 8302.55 may be as good as any other number, it seems like a good idea to estimate that what hasn't retested its October 1998 low will. The actual October '98 lows were 7400.3 for the Dow (please note that 8000 is roughly the top of the six-week base built from late August 1998 to mid-October 1998); 923.32 for the

S&P 500

(please note that the 1050 level was broken and it was roughly the top of the six-week base built from late August 1998 to mid-October 1998); and 1357.09 for the Nasdaq (please note that the 1800 level was broken and it was roughly the top of the eight-week base built from late August 1998 to late October 1998).

John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing 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. He appreciates your feedback and invites you to send it to

John Roque.