May 23, 2000

I want to clear something up. I did not say the


was going to 2000. All I said was that it was one possible scenario. Now, let's forget the myriad trendlines that anyone and everyone can draw from any chart angle and focus on what the statistics are telling us.

Did you hear the sigh of relief when the market rallied off the lows on Monday? And is the rally for real or not?

The Nasdaq showed a few positive divergences during Monday's action. We had a lower low in the Comp, but with fewer stocks making new lows. Yesterday's new intraday low of 3172 vs. the April 17 low of 3227 showed some stocks holding. The previous peak reading of new lows was 505 vs. yesterday's reading of only 267. That is usually a sign that sellers did not want to pressure stocks any longer at those levels so selling dried up and the market lifted.

In addition to the contraction in stocks making new lows, the market has become modestly oversold. And the oscillator did not come down to the previous oversold level. That is a positive divergence as well, since this tells us there was less momentum on this leg down than the previous one -- yet another sign that the selling had dried up at those levels.

I also thought the increase in volume was a positive.

But that's where the positives end. While the total pickup in volume was positive, the relationship of upside volume to downside volume was not bullish -- it was about 2:1 down to up. Prior to April, the reversals we had on the Nasdaq were accompanied by a huge shift in that relationship, from negative to positive, whether the Nasdaq made it back to positive territory or not. This time, the volume relationship was not impressive. And due to that negative relationship, the cumulative volume on the Nasdaq broke below its April 17 low. That does not speak of a reversal worth buying for.

The relationship that catches my eye most these days is the relationship of the Nasdaq Composite to the

S&P 500

. Even though I hate it when the anchor people on the financial news shows call it the "tech-heavy Nasdaq," this average


heavily weighted, via market capitalization, to the technology sector.

Beginning with the peak on March 10 you can see how the S&P has outperformed the Nasdaq Composite. And yesterday's rally didn't even make a blip's difference in this relationship. This is just one of the reasons that I believe the leadership that technology provided for the past year or so is gone.

This reversal of the relationship between the Nasdaq and the S&P 500 is highlighted even more so when we see the relationship of the financials to the S&P 500. On the exact same date -- March 10 -- that the relationship between the Nasdaq and the S&P reversed, the relationship between the

New York Financial Index

and the S&P turned positive.

While I am still waiting for the New York Financial Index to break out of the two-year downtrend it's been in (by crossing the 550 level), I find it curious that the 30-year bond was at a yield of 6.19 on March 10, exactly where it stands today, yet the stocks that are interest-rate sensitive have been outperforming for these past two months.

I bring all of this up because it is now conventional wisdom that as soon as the


stops raising interest rates, technology will be OK to buy and tech stocks will resume their upward climb. Yet the action of the tech stocks shows very little correlation to interest rates.

You may recall that these stocks ignored higher rates on the way up. Now rates are where they were two months ago, when the Nasdaq was at 5000, yet these stocks are all well off their highs. This is not about interest rates, it's about sentiment and perception. And there's been a change in sentiment toward owning technology stocks. Oh, maybe it's not just technology stocks, maybe it's high price-to-earnings ratio stocks, or maybe it's growth stocks, but whatever it is, there has been a subtle shift out there and we ought to be aware of it.

Based on the two positive divergences we saw during Monday's action and the fact that the oscillator says the market can rally for a few more days before it runs out of steam again, this rally may extend itself. For now, it appears we held on the downside, but until the statistics begin to act better on the upside I still believe there will be precious little progress made.

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 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