May 24, 2000
I really hate it when the market closes on its low. You never know if the selling ended because the bell rang or because it was tapering off anyway. Yeah, I know they have extended-hours trading, but we all know the liquidity is not the same after the regular closing bell.
For sure, there were plenty of stocks that held not only Monday's lows, but the lows of April 17 as well. There were only 155 stocks making new lows on the
, which should really be considered a positive divergence.
And as if sentiment wasn't negative enough, Tuesday really brought out the bears; after Monday's reversal, folks were looking for a bounce and didn't get one. By now I'd guess there are a few more people wondering if we'll ever bounce again. While I still believe bounces are possible, I don't think they're going anywhere worth buying.
I know I promised several readers I wouldn't pick on
again, but it's such an easy chart to pick on that I keep coming back to it. I want to show it in comparison to
Bank of America
. The time tables are quite different due to constraints in the charting system, but let's not focus on that. Look at the pattern instead. Bank of America had a great run from the 1994 low of 20 all the way up to 90 in 1998. I know this doesn't compare to the kind of gains we've seen in technology, but the pattern remains similar and it is instructive: It shows what happens when stocks fall out of favor.
You can see the big spike up in Bank of America in 1998 followed by the big slide to about 45 shortly thereafter. Not that different than Qualcomm's spike to 200 followed by a slide to 100. In each case the stock halved. See the rally in Bank of America, where in 1999 it failed just below 80? Now back to Qualcomm: Its rally failed just over 160. Both rallies in the 60% range. Then look at Bank of America's deterioration after that rally.
Bank of America's timing from its high to its recent low has been two years, while Qualcomm's has only been six months. But you can look at the Bank of America chart and easily see -- even if it is making a bottom and I believe it is trying desperately to do so -- what a struggle it will be to eat through all those layers of resistance. And this stock has had two years to wear investors down, so it's probably not nearly as widely held as Qualcomm still is.
I know all the arguments about how Qualcomm is a technology stock that is growing at 50% and how Qualcomm's CDMA technology is the future and so on, but there was a time the banks could do no wrong either. Just ask anyone who owned the financial stocks back then. All you had to do was buy the dip. Even 1994, when the
was raising interest rates, looks like a blip on this chart.
This is why I continue to believe rallies in these beaten-down technology names are not going anywhere on the upside; there are still too many owners salivating for higher prices at which to sell.
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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