Signs of the Times

Helene Meisler examines what we know about the current market.
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We know there are plenty of reasons not to like this market. We know the advance/decline line is awful. We know the number of stocks at new highs is pathetic. We know volume hasn't been explosive on this leg up. We know the dollar has been a problem. We know Y2K is just around the corner.

But we also know that the market will do what it can to surprise the greatest number of people. The head-and-shoulders top was so obvious that it didn't work. The sentiment had turned so bearish so quickly that most investors were unable to believe the upside. How could they be bullish? Heck, they had just turned bearish.

Something else we know is that most stocks made their highs in April. That's when we had the peak reading at 173. For most stocks, July's rally failed before they could surpass those April highs. So now if we step back and use a bigger-picture view, maybe we can see that since the highs in April, this has been one giant sideways correction. I'm beginning to have several charts in the pile which we can say this about.

As long as the momentum indicators I've been discussing for over a week now are still heading up, we should give this market the benefit of the doubt. If by the time those indicators are ready to roll over again the internal market statistics haven't improved, then I'll be the first to say that the window of opportunity has closed. But until that time, the window is still open and those statistics should be given a chance to improve.

Typically from the first time we see improvement in the indicators, we will have an initial surge upward, mostly to relieve the grossly oversold condition. During this period of time, the indicators will usually not look so hot. But then what happens is the market gets overbought and takes a breather, getting even those of us who saw the improvement scared. You may recall mid-February when I saw improvement in the market; it rallied. Then it came right back down on some hawkish comments from

Alan Greenspan

, making me feel like a fool for jumping the gun. But that's when the statistics began to improve for real.

The market is currently moderately overbought. And as stated above, the statistics are stinko. But if this market is so awful, wouldn't you expect

Wal-Mart's

(WMT) - Get Report

downgrade by

Merrill Lynch

,

Bank One's

(ONE) - Get Report

negative earnings announcement and a huge durable-goods number to send this market into a tailspin? It's not the news, but rather how the stock (or market) reacts to it.

Of course, you're just dying to know which charts have gotten better, aren't you? First of all, I was dead wrong about

Johnson & Johnson

(JNJ) - Get Report

failing. There are only two other drug stocks (of those I chart by hand) which I think are improved charts:

Abbott Labs

(ABT) - Get Report

and

Schering-Plough

(SGP)

. So I began to look at other charts I had had the same view on to see if perhaps they had shown the same sort of improvement.

McDonald's

(MCD) - Get Report

comes to mind. Yesterday's increasing volume makes me think maybe it's gonna do the same thing Johnson & Johnson did.

I've been recommending

Procter & Gamble

(PG) - Get Report

for quite some time and still believe it's a good chart, although a bit overbought up here.

Colgate

(CL) - Get Report

has been on the list quite often as well. But

Anheuser-Busch

(BUD) - Get Report

is new. The move since April now looks like a big correction. Add to this

Telmex

(TMX)

and

Kimberly-Clark

(KMB) - Get Report

.

Don't forget the cereal stocks,

General Mills

(GIS) - Get Report

and

Kellogg

(K) - Get Report

. You will get sick of hearing me push them, but they are good charts with nice bases. I have not had a good word to say about

Sara Lee

(SLE)

for quite some time, but I would be remiss if I did not point out that yesterday's action crossed a downtrend line to the upside.

In the financial area,

Chase

(CMB)

is vastly improved, and I still like

American International Group

(AIG) - Get Report

as the sort of charts which made their highs in the spring and are now showing improvement.

Dell

(DELL) - Get Report

, which no one liked at 35, is now loved again by all; its chart is buyable into a pullback.

Lucent

(LU)

is still one of my favorite tech names.

Cisco

(CSCO) - Get Report

has also made its way onto my list again.

On the negative side,

Hewlett-Packard

(HWP)

is in a correction phase and will likely stay that way for quite some time. I'd add

IBM

(IBM) - Get Report

to that category as well.

Oracle

(ORCL) - Get Report

and

Applied Materials

(AMAT) - Get Report

are two other tech names that do not trade well.

Limited

(LTD)

and

Nordstrom

(JWN) - Get Report

in retail land are still bothersome. And the oil-service stocks, which had become the favorites just weeks ago, are rolling over.

The market's overbought, and the internal market statistics are not confirming this upward push. We know that. But we also know that stocks are not reacting to bad news the way they did two weeks ago, and there is underlying improvement, even though we must squint to see it. Should the overboughtness take this market down, I suspect the statistics will show some relative strength.

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 Hewlett-Packard, 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.