May 9, 2000

"Is this a bear market?"

Over the past week or so, I have been asked this question more than I can remember in nearly two decades of writing about the market. While the answer is not as black and white as it used to be, it seems odd to me that for the past two years the majority of stocks on the

New York Stock Exchange

have been in bear markets, yet most investors have chosen to shrug that off. No one ever asked that question before. It's only now that


technology stocks have taken a beating that the question gets asked.

The generally accepted definition of a bear market used to be a loss of 20% or greater. What's interesting is that this was applied to the

Dow Jones Industrial Average

or the


. We all know that the DJIA and S&P have not been down 20% or more over the past two years. However, the stocks these averages represent, namely the NYSE, do not bear much resemblance to these two big averages. The majority of stocks on the NYSE made their highs in April 1998, and here we are two years later with just a handful of stocks on this exchange still at or near their highs.

So, will folks call it a bear when (or if) the S&P goes down 20%? Seems to me that's not the issue; the issue is that at the end of 1999 the statistics told us that over 50% of the stocks on the NYSE were down 40% or more. I don't know about you, but I think that when over 50% of the stocks are down, that's a bear market, regardless of what the S&P tells us.

So now we must decide if two years of declines are enough to say we're at the end of the bear market or not. One of the best measurements we have for this is the number of stocks making new lows. Back in December, the NYSE saw 565 stocks making new 52-week lows. While some of that was year-end tax loss selling, much of it was related to the financial stocks, and even with interest rates climbing again, this statistic has not come close to breaching that number. While there's no guarantee that this number will not increase on a huge down move, it seems to me that we had the opportunity to break back in mid-February and did not. For this reason, I expect that many stocks will hold on subsequent down moves.

We are in a time of repair and base-building, and this requires a lot of back and forth and up and down. It also makes for a lot of investor frustration as stocks never really get going on the upside or the downside -- instead, they grind away and wear you down.

The most obvious consequence of this is the low volume we're seeing. When it's this hard to make money, there's no reason to play. And if folks aren't playing, then the volume dries up. Lack of volume translates to lack of conviction.

Over on the Nasdaq, the initial decline is much more recent and therefore not as easy to pin down. But what is important now is that it seems likely that a majority of the technology stocks that had been recent winners have seen their highs. As we sit here near Nasdaq 3670, roughly 25% off the highs, it's hard to imagine that stocks down over 50% from their highs could recover those moves with a 20% rally.

For example, do you think that a 20% rally in Nasdaq would take


(QCOM) - Get Report

back over 200? The stock would have to more than double its current level. And in the current environment, the odds are against that happening. Of course, there are plenty of other stocks in this same position.

In addition, the decline in volume on the Nasdaq is indicative of a lack of interest that will not revive overnight. And I do not believe that a 50-basis point rate hike next week will change this. Because even if we get a relief rally from such a rate hike, the June meeting is just around the corner, and speculation on what the


will do will again cause the market to trade from economic statistic to economic statistic.

Overbought/Oversold Oscillators

For an explanation of these indicators, check out The Chartist's


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