The Stock Market Looks Like a Marathon Man

The market, like a long-distance runner, needs a proper rest.
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For the past several weeks it seemed that every time I heard or read anything about the stock market it had to do with the Internet stocks. It was as though nothing else existed. Earnings? What earnings? GDP? Who cares? Interest rates? Big deal. It's as if the market was the Internet stocks, and that's all that mattered.

Every interviewee was asked their thoughts on those amazing dot-coms. I received several emails requesting I write about those parabolic charts. We waited anxiously for

Yahoo!

(YHOO)

to report -- not its earnings, but its eyeballs (I think that's the phrase used these days to describe how many "hits" there were on the site). But then, something happened: Brazil widened the trading bands on the real.

For a few moments, our old friend the stock market was back again, reacting to something that didn't have anything to do with the Internet. Stocks were reacting to economic news again. Finally, they were doing what they were supposed to do. (Although after the devaluation on Friday, the Brazilian stock market looked a little bit like

Bovespa.com

!)

The relief rally on Friday didn't change the statistics much. It takes more than one day's action to swing these statistics back up from their current downward slopes. It would be much more preferable if the market were to swing down one more time this week.

I have never been a fan of "V" bottoms in the market averages, or in individual stocks. That's not to say that they cannot happen; they do. But I would rather see stocks have a retest than not. A retest typically looks more like a "W." Many times the second dip is lower than the first; sometimes it's not. What matters most is the retest. It's on that retest that the good stocks hold at higher lows while the averages continue their slides. In simple terms, it tells us that's a good level, one at which we can have confidence in buying.

The most positive scenario for the market right now is for it to come back down later this week and retest the lows we made on Thursday. That would give us the time needed to swing those momentum indicators back to the upside.

Oh, they can swing back up without coming down first, but if that happens, the market will be struggling against momentum instead of trading with it. It may seem that Friday's rally had great momentum but in fact, it didn't. For instance, the volume on the

New York Stock Exchange

was the lowest we'd seen since Dec. 31, two weeks earlier. And that lack of volume showed up in many individual stock charts too.

For example,

IBM

(IBM) - Get Report

traded 5 million shares on Thursday, but only 3 million on Friday.

Intel

(INTC) - Get Report

, which couldn't even muster a rally back to Thursday's highs, traded almost 5 million shares less on Friday. There were a few stocks in my pile that had more volume Friday than Thursday.

American Express

(AXP) - Get Report

traded well on higher volume; Yahoo! had higher volume but continued its slide.

This is not meant to scare you; it's just meant to point out that Friday's action looked more like a relief rally than the start of a whole new up leg for the market. Stocks still need more rest. They don't seem prepared to push higher in a healthy fashion without a proper rest.

And if they just keep going up from here, without a retest? They will likely get tired much quicker and fall even further on their next leg down. Imagine a marathon runner who does not get enough rest in the days prior to a race: How far will he run before he exhausts himself? Not far. First he'll get wobbly legs, soon after his legs will just give out from under him. If he gets the proper rest prior to the race, he will have the stamina to complete the race in a timely manner. The market is no different.

As for individual stocks, the names on the positive side haven't changed very much. In the

DJIA

,

DuPont

(DD) - Get Report

is acting better.

Johnson & Johnson's

(JNJ) - Get Report

two-month correction may be nearing an end. And

Union Carbide

(UK)

seems to be forming a neat little base.

Elsewhere,

Anheuser-Busch

(BUD) - Get Report

continues to push higher.

Nucor

(NUE) - Get Report

and

Air Products'

(APD) - Get Report

bases just get bigger and better. And

Delta

(DAL) - Get Report

is acting much better these days.

On the negative side,

Sara Lee

(SLE)

is sellable up here.

Bristol-Myers

(BMY) - Get Report

is back on my negative list. And

Home Depot

(HD) - Get Report

is overdue for a rally to sell into.

Let's root for another pullback as that will make the charts look better. We may just get that pullback when

Mr. Greenspan

has his first chat of the New Year with

Congress

on Wednesday. After all, with the market at these lofty levels, it's unlikely Mr. Greenspan will want to talk the market up.

Our Marathon Man needs more rest; let's hope he gets it.

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets Tuesdays and Fridays. At time of publication she had no position in the stocks mentioned, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. She appreciates your feedback at KPMHSM@aol.com.